Swiss Bank UBS Shares Rocket on Earnings Beat | The Pulse with Francine Lacqua 05/07/24

Summary

In today's episode of 'The Pulse', hosted by Francine Lacqua in Zurich, we delve into a variety of global market dynamics and geopolitical developments. Highlights include UBS's strong financial performance, continuing its integration with Credit Suisse, and maintaining robust investment banking results. Global markets show optimism as the Fed contemplates interest rate cuts. Geopolitically, tensions in the Middle East escalate as Israel rejects a ceasefire proposal from Hamas. Additionally, discussions about future economic policies and their implications on global finance, including insights from industry experts, are also covered.

Takeaways

• 😀 UBS reports a strong first quarter with wealth and investment banking exceeding expectations, continuing momentum from the previous quarter.
• 🌍 Amidst regional tensions, Israel rejects a ceasefire proposal backed by Hamas, continuing military operations in Rafah.
• 📉 Global financial discussions include the potential for the Fed to cut interest rates this year, boosting optimism in financial markets.
• 🛢️ Energy giants like Aramco and BP maintain significant dividend payouts and share buybacks despite challenges in profit margins.
• 🗣️ The CEO of UBS discusses ongoing integration with Credit Suisse, highlighting strategic execution despite regulatory and capital challenges.
• 📊 European stock markets show positive movement influenced by corporate earnings and monetary policy expectations.
• 🌐 Geopolitical tensions influence market sentiments, with ongoing conflicts and diplomatic efforts shaping economic forecasts.
• 💬 Experts from financial institutions provide insights into future economic policies and market strategies, considering global inflation and interest rate scenarios.
• 🏦 UBS plans robust financial strategies to handle potential increases in capital requirements following the Credit Suisse integration.
• 🔍 Analysts focus on future actions by central banks like the Fed, ECB, and Bank of England, predicting impacts on global and European economies.

Q & A

What were the key highlights of UBS's performance in the first quarter as mentioned in the program?

UBS outperformed expectations in the first quarter with significant gains in both wealth management and investment banking sectors. This performance was highlighted by a more than 6% increase in their shares after returning to profit. The integration of Credit Suisse onto their platform was also noted as a factor contributing to their strong performance.

How is UBS managing the integration of Credit Suisse and the associated challenges?

UBS is actively working on integrating Credit Suisse colleagues and processes into their platform. This includes absorbing and standardizing Credit Suisse’s capital calculation methods to UBS standards, which involves a significant increase in capital requirements. The UBS CEO mentioned a focus on executing their strategy despite not being consulted during the regulatory proposal processes.

What are the concerns regarding the capital requirements for UBS following the acquisition of Credit Suisse?

The UBS CEO expressed concerns about the capital requirements needed to stabilize the new bank structure post-acquisition. It is estimated that UBS will need approximately 20 billion in additional capital to meet these requirements, which includes adjusting for increased market share and balance sheet size.

What did the UBS CEO say about the impact of future interest rate cuts by central banks?

The UBS CEO speculated that if inflation rates decrease to the target levels allowing central banks to cut interest rates, there could be positive momentum in the market. However, he also noted the potential for economic uncertainty driven by global elections and geopolitical events.

What were the main points discussed about the global fixed income market by Simon Gore from Goldman Sachs Asset Management?

Simon Gore discussed the current state of the fixed income markets, highlighting that inflation expectations are well-managed and labor markets are showing signs of easing. He anticipates that the Fed will likely cut rates in September based on these trends, creating opportunities in the fixed income markets, especially in Europe where he expects rate cuts to occur sooner than in the U.S.

How did the program describe the situation in the Middle East, particularly regarding Israel and Hamas?

The program reported that Israel rejected a ceasefire proposal backed by Hamas, with Israel planning to continue military operations in Rafah. This rejection came hours after Hamas agreed to the plan, indicating ongoing tension and conflict in the region.

What was the response of major oil companies like Aramco and BP to their financial situations as mentioned in the program?

Aramco maintained its $31 billion dividend payout despite lower profits, demonstrating commitment to its dividend policy. BP, despite missing profit estimates, continued its share buyback program, emphasizing its strategy to return value to shareholders amid fluctuating oil prices.

What did Francine Lacqua discuss regarding potential changes in UBS strategy following the integration of Credit Suisse?

Francine Lacqua highlighted UBS's strategic focus on integrating Credit Suisse efficiently to maintain profitability. The discussion emphasized UBS's efforts to manage the increased capital requirements and strategic execution challenges following the merger.

How did the market react to UBS’s performance and announcements, according to the script?

The market reacted positively to UBS’s performance, with shares gaining significantly. This reaction was tied to the bank's strong first-quarter results and successful initial steps in integrating Credit Suisse, indicating investor confidence in UBS’s strategic direction and financial health.

What did George Avalos from Deutsche Bank say about the potential interventions in the Japanese yen?

George Avalos discussed that while periodic interventions to stabilize the yen have occurred, such measures are unlikely to fundamentally strengthen the yen unless the Bank of Japan adjusts its interest rate policies. He highlighted that real rates in Japan remain highly negative, which continues to exert downward pressure on the yen.

Outlines

00:00

📈 Market Updates and Corporate Insights

Francine Lacqua introduces today's program from Zurich, discussing significant market movements including UBS's performance surge post-Q1 expectations due to strong banking results and Credit Suisse integration. She highlights other market activities like Aramco maintaining its dividend despite profit drops, ongoing Fed expectations affecting stock movements, and geopolitical tensions with Israel's rejection of a Hamas-backed ceasefire. The segment wraps with discussions on European market optimism influenced by anticipated Fed rate cuts.

05:03

🏦 UBS Integration and Capital Strategy

The CEO of UBS discusses the ongoing integration with Credit Suisse, estimating a need for an additional $20 billion capital due to regulatory changes, impacting financial targets for 2026. Despite market uncertainties and potential global economic shifts, UBS prepares for strategic executions including share buybacks. The CEO emphasizes focus on navigating through regulatory environments and maintaining profitability during the integration process.

10:06

🌍 European and Global Economic Outlook

Simon from Goldman Sachs provides an analysis of the global macroeconomic environment, emphasizing the impact of the Fed's rate decisions on global markets, including expectations for the ECB and Bank of England. The discussion includes the strategic implications of rate cuts and inflation trends across major economies, with a focus on European fixed income markets and potential opportunities arising from economic policies.

15:08

🛢️ Energy Sector Developments and Market Impacts

This segment covers the energy sector's financial dynamics, focusing on BP and Aramco's strategies amid fluctuating oil prices. The discussion includes how these companies are managing dividends and shareholder returns during economic downturns. Insights from Bloomberg's Middle East energy editor highlight how global energy demands and pricing affect these strategies.

20:11

📉 Middle East Tensions and Geopolitical Risks

The report delves into the escalating conflict in the Middle East, particularly Israel's military actions in Gaza and its implications for regional stability. Bloomberg’s EMEA news director discusses the potential for a ground offensive in Rafah and the challenges in reaching a ceasefire agreement. The segment reflects on how geopolitical developments could influence global markets and political strategies.

25:15

🌐 Geopolitical Dynamics and Financial Market Reactions

The discussion focuses on global geopolitical issues, highlighting the interactions between China and the European Union during President Xi's visit. The complexities of international trade, political relationships, and economic strategies are examined, particularly in the context of ongoing conflicts and their impact on global markets.

30:18

💹 Forex Market Trends and Economic Policies

George Avalos from Deutsche Bank discusses current trends in the forex markets, particularly focusing on the yen's performance and potential government interventions. The segment also touches on broader economic indicators and policies from major economies, forecasting the implications for currency valuations and international financial stability.

35:19

📊 UBS's Strategic Developments and Financial Forecast

The UBS CEO discusses the company's strategy moving forward after integrating Credit Suisse, focusing on achieving profitability and meeting capital requirements. The segment also covers UBS's outlook on global wealth management amidst potential interest rate cuts and their impact on financial planning and market conditions.

40:21

🌏 UBS's Integration Challenges and Financial Projections

This final segment explores the complexities of UBS’s integration with Credit Suisse, highlighting the financial and operational challenges. Discussions include the Swiss financial environment's response to UBS's strategies and the broader implications for global banking competitiveness and regulatory requirements.

Keywords

💡UBS

UBS is a major Swiss financial services company known for its wealth management, investment banking, and asset management services. In the video, UBS is highlighted for its financial performance, specifically after acquiring Credit Suisse, which helped it rebound with strong quarterly profits. The focus on UBS in the script underlines the impact of strategic mergers and acquisitions in the finance sector, reflecting how these moves can significantly affect a company's market performance and operational strategy.

💡Cease fire proposal

A cease fire proposal is an agreement to stop hostilities between conflicting parties, usually in a military context. In the script, Israel rejects a cease fire proposal backed by Hamas, indicating ongoing tensions and complexities in geopolitical conflicts. This rejection impacts international relations and has implications for regional stability, demonstrating the challenges in achieving lasting peace in conflict zones.

💡Federal Reserve (Fed)

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. The video discusses expectations that the Fed might start cutting interest rates, which is significant because such decisions influence global financial markets, economic growth, and inflation. The anticipation of rate cuts is linked to broader economic conditions and investor sentiments, as indicated by movements in stock and bond markets.

💡Capital requirements

Capital requirements refer to the mandated regulatory requirement for banks and other financial institutions to hold a certain amount of capital. In the script, there's discussion about how new proposals on capital raising for systemic banks might impact UBS. This is crucial for understanding the regulatory landscape that banks operate within, and how these requirements aim to ensure financial stability and reduce systemic risk.

💡Share buybacks

Share buybacks are when a company purchases its own outstanding shares to reduce the number of shares available on the market. The script mentions BP maintaining share buybacks despite financial setbacks, which typically serves to increase the value of remaining shares and return wealth to shareholders. This strategy is often used to express confidence in the company's financial health and to attract further investment.

💡Yield

In finance, yield is the income return on an investment, such as the interest or dividends received from holding a particular security. The script references the yield on ten-year treasuries dipping, which affects investors' perceptions and investment decisions in bond markets. This fluctuation in yield rates can indicate broader economic trends and influence global investment strategies.

💡Inflationary outlook

The inflationary outlook refers to expectations regarding future inflation rates, which can influence central bank policies and economic planning. In the video, discussions about inflationary outlook impact decisions on interest rates and financial planning. For example, UBS's strategic decisions are partly based on their expectations of inflation, which affects their profitability and operational strategies.

💡Credit Suisse

Credit Suisse was a prominent Swiss bank that faced significant financial difficulties leading to its acquisition by UBS. This event is discussed in terms of its impact on UBS's strategy and financial health. The integration of Credit Suisse into UBS is portrayed as a major financial maneuver, illustrating how corporate mergers and acquisitions can have far-reaching effects on the business landscape and employee integration.

💡Economic sanctions

Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted country, group, or individual. Although not directly mentioned in your script, understanding this term is crucial when discussing geopolitical tensions and trade relationships, such as those between China and the European Union, or the implications of policy decisions on global trade.

💡Geopolitical tensions

Geopolitical tensions refer to conflicts or disagreements between countries or regions. The script touches on various instances of geopolitical tensions, such as those involving Israel and Hamas, and broader international relations, including discussions between global leaders. These tensions can significantly impact international markets, policy decisions, and global diplomacy.

Highlights

UBS soars after outperforming expectations in the first quarter, with strong performances in wealth and investment banking.

Credit Suisse integration begins as UBS starts to see a developing pipeline.

Aramco maintains a $31 billion dividend payout despite a decrease in profit.

BP continues share buybacks despite missing profit estimates.

Israel rejects a ceasefire proposal backed by Hamas, vows to continue military operations.

European stocks advance, fueled by optimism that the Fed will cut interest rates.

Investor optimism grows on bets the Fed will start cutting interest rates this year.

UBS returns to profit, shares gain more than 6%.

Japanese yen slips as top currency official in Japan states no need for government intervention.

UBS chief discusses challenges and expectations following the integration of Credit Suisse.

Discussion on the impact of Swiss capital requirements on UBS's strategy and operations.

George Soros to discuss currencies, highlighting the strategic importance of forex movements.

UBS anticipates needing to increase capital by approximately 20 billion due to Credit Suisse acquisition.

Analysis of potential Federal Reserve actions based on U.S. jobs data and inflation trends.

Goldman Sachs representative discusses tactical opportunities in fixed income markets.

Transcripts

Newsmakers and Market movers. This is the pulse with friends in like.

Well, good morning, everyone, and welcome to the pulse of Francine Lacqua

here in Zurich with what's coming up in today's program.

UBS soars after outperforming expectations in the first quarter as

wealth and investment banking beat. Actually, it's a good momentum.

I may remember in the fourth quarter, we also had a very strong performance in

banking. As we integrate the new colleagues from

Credit Suisse on our platform. We start to see the pipeline developing.

We are able to execute more from our interview.

The chief executive said Germany coming up shortly.

Now the world's biggest oil exporter, Aramco, keeps its $31 billion dividend

payout despite lower profit. BP maintains the pace of share buybacks

despite missing estimates. And Israel rejects a ceasefire proposal

backed by Hamas hours after the militant group agreed to the plan, Israel vowing

to push ahead with military operations in Rafah.

Well, let's take a look at the European markets map.

Again, it's Tuesday and there is a lot going on.

We do have a couple of Fed speakers a little bit later on.

But if you look at European stocks in general, actually advancing on a pretty

busy day for a company earnings. Optimism also growing that the Fed will

start cutting interest rates this year. Now, UBS, I think gain gaining more than

6% after a return to profit. UniCredit also up on better than

expected forecast it look at if you look at the ten year treasuries extending

some of their advances the yield actually dipping two basis points to

4.46%. So let's look at cross assets.

We are looking in particular to a lot of these treasuries because of auctions

coming up. And then we have the Minneapolis Fed

president Neel Kashkari, also among some of the officials scheduled to speak a

little bit later on on Tuesday. I'm looking at oil actually advancing

for a second day again on tensions in the Middle East with Israel rejecting

that cease fire proposal for the Gaza Strip.

And then you can also see, again, 154.12.

So the Japanese yen actually slipping. We did hear from the top currency

official in Japan, masatoshi Honda saying there was no need for the

government to intervene if the market is functioning properly.

I'm really looking forward to our conversation with George Soros on all

things currencies. Now back to corporates and UBS shares

gaining their most since March of last year after the Swiss lender beat

earnings estimates and returned to profit after two loss making quarters.

Now, strong performances in both wealth management and investment banking are

helping UBS to really make sustained progress with the integration of Credit

Suisse after its emergency rescue last year.

Well, the chief executive says Germany spoke to us about the company's

performance, inflationary outlook and of course, the impact of capital

requirements. Just depending on on the outlook for

four four rates and the economy. I would say if inflation comes down to

the 2% targets and the central banks are able really to to cut rates, this may

give a little bit of positive momentum. But on the other end, we need to also

expect some uncertainties around major elections globally and how they play out

in in more so in economic terms, in in terms of trade

wars or potential escalations of that matter.

And and even on the geopolitical front. Sir, do you worry that proposals put in

place by Swiss authorities on capital raising really for systemic banks

overshadows some of the work that you're doing at UBS?

Look, I think that we agree on the vast majority of what has been proposed.

We already commented and highlighted the necessity of creating clarity.

I think that's at this stage what we stay focus on is on execution, executing

on our strategy. We were not really consulted in this

process. So it is also very difficult for us to

comment. Certain aspects of those proposals.

What we know is that we need indeed to to absorb a lot of of of the capital

requirements that are necessary to capitalize the new bank as of as a

consequence of the acquisition of Credit Suisse.

We've heard figures from 15 to 25 billion.

Do you have a ballpark or actually is there a very wide range of scenarios?

Well, there are two elements which we know.

If I look at by absorbing and

Credit Suisse, we have to basically bring

their methodology for calculation of capital to our standards.

And that means that we going to have to basically

increase the requirements by nine billions.

If I look at also the progressive element of that is driven by market

share and balance sheet size. We are also spending another 10 billion,

so we are talking around 20 billions of additional capital that we already

factor in our financial planning and targets for 2026.

So we know that, you know, indeed acquiring Credit Suisse

will cost UBS around 20 billion tons more capital.

So that's the only comment I can make. Other figures I can be I can't really

comment on them because I don't know exactly what they mean.

And it would be not appropriate for me to to speculate or respond to

speculations. But so is your working assumption that

actually, even in a worst case scenario, it won't actually hurt the dividend?

It's not going to hurt some of your financial targets?

Well, that remains to be seen, because as these rules are developed and and

clarified, we will need to then assess exactly how they play into our capital

return plans for 2024. We still we are accruing for a double

digit increase of our cash dividend as we previously communicated.

So in the first quarter we did that and after the parent bank merger in at the

end of of of May, we will be prepared if everything goes as smooth as we expect

to execute on our 1 billion capital return plans, i.e.

through share buybacks. So when do you think you'll get clarity

from from Swiss authorities? I mean, a timeline, I guess.

I think this is still so for me is very important.

And I do expect that no final decision will be taken before the investigating

commissions of the parliaments clarifies all what's happening around the failures

of of Credit Suisse. I think it's very important not to jump

into conclusions too quickly about this matter.

So if you look at that matter, it's very difficult to expect clarity before year

end or probably even the first part of 2025.

Well, we'll bring you more from that interview with Germany, the UBS chief

executive, a little bit later on in the show.

Now, markets have been buoyed by optimism that the Fed will start cutting

rates this year. Investors are revising their bets due to

soft U.S. jobs data.

Well, I'm glad to be joined by someone, Dunn Gore, head of fixed income macro

strategies at Goldman Sachs Asset Management.

Simon, great to see you. I can't believe you're in London and I'm

in Zurich, but it goes that way when you have big earnings out of Zurich.

When you look at the global macro environment.

SIMON Is there a misunderstanding from parts of the markets of what the Fed

does? Thanks very much for having me this

morning, Francine. Q One inflation in the US was clearly

disappointing, but when we look at the broad drivers of inflation, we're in a

totally different place to where we were in 2022.

In 2023, inflation expectations are well-behaved.

The labour market continues to show signs of easing.

We got more information favourable to that on Friday and so we believe that

we're going to see more of this inflation pattern over the course of

this year and therefore pals wait and see strategy is the right one and that

the risks of new hikes from the Fed remain quite low and we are likely to

see cuts in in September. So we think the Fed is guiding to

something which does look like an appropriate strategy.

We think investors have broadly got it. In many respects, the most interesting

tactical opportunities in fixed income markets right now maybe are in this time

zone. And we'll get some more information from

the Bank of England And the Riksbank this week should be interesting to

follow. But the broad picture is that the bond

friendly environment has been delayed rather than derailed.

And we've got a friendly central bank behind that.

So something we're expecting, of course, a lot of European central banks, I'm

feeling I mean, I'm thinking of the Bank of England and the ECB are actually

cutting rates far quicker than the Fed. It does the gravitational pull towards

the Fed actually complicate things for European economies.

I think ultimately the Fed does matter. The Fed sets the price of global capital

to a large extent, but I think it's important to remember the starting point

of rates at in in in Europe and the fact that we are very clearly at levels that

are above neutral. I think you can see a picture that

things are much clearly tight in Europe and particularly if you look at a place

like Sweden, probably a place where you can make the strongest case that things

are tight. And so certainly the first 100 or so

basis points of cuts we think can be done quite independently of the Fed.

And that leaves us constructive on parts of fixed income out in Europe.

So what does that mean for, for example, places that you like in Europe?

I'll put that first cut in June coming from the ECB.

What happens next? And do you does it impact, you know, to

to a point a lot of the Italian bonds or German bonds to where you want to come

in and swap some of them up? Well, I think in many respects, Europe

is seems better priced than some of the other markets.

So the ECB, we expect they're going to cut in June.

That's well priced by the market here. Something like three or four cuts over

the balance of the year would be where our expectations are.

So upside in European fixed income, we like steepness.

Ultimately, that will be a positive backdrop for European credit, including

including sovereign bonds. I think where the real opportunities are

are some of the satellite markets in Europe, UK, the markets priced for only

two cuts from the Bank of England this year.

We expect the Bank of England will probably start cutting in June.

That debate in the market has really been about where the inflation risks in

the UK are different or similar to elsewhere.

All of our analysis suggests that they're more similar.

We're seeing signs of things easing up in the labour market.

We're starting to see members of the Bank of England that had previously been

more hawkish starts to talk in a more open minded case towards a dove ish

dovish outlook. I think Shapiro's is going to be a key

person to watch if he makes the transition over sort of coming

communications. So expecting the Bank of England to

starts to lean more dovish when we get communication from them on Thursday, cut

in in June and cut much more than what's priced into the forecast.

So too that in this timezone is where we sort of lean more constructive to

European fixed income itself looks somewhat better priced.

So I mean what about the Bank of Japan and actually what that means for

Japanese assets? I don't know whether again, the schism

or actually when we really start this divergence play what that means for

opportunities in the markets. Well, this is one of the fascinating

things about 2024. In many respects, the opportunities are

not necessarily just in the overall level of rates, but in how different

parts of view of the G10 are going to be heading in different directions, which

is obviously quite a different set up from what we've seen over the course of

2022 and 2023. You know, we've talked a little bit

about sort of Europe decoupling somewhat from the U.S., but the big decoupling we

think is in in Japan, the inflation process in Japan is in a different place

to what we've been used to in Japan for such a long period of time.

And you see that in wages. You see that very obviously in inflation

expectations. And whilst there's not runaway inflation

by any means in Japan, the starting point of real policy rates in Japan is

just so far away from what we see in the rest of the world.

That real yield gap is really as large as it's ever been.

And with that, we're seeing this this sort of very significant depreciation of

the yen. We might get periodic interventions like

we saw last week, but ultimately, until that real yield gap closes, there's

going to be upward pressure on the on the Japanese inflation process.

So we're surprised at the market, particularly in the intermediate part of

the curve, doesn't put more risk premium around the idea that the Bank of Japan

is going to have to go faster than than what's currently priced.

And this is going to be an interesting World Bank of Japan hiking rates, us

potentially cutting rates later this year and Europe going in the middle of

the year. So divergence and with that, quite a lot

of active opportunities we think is going to be the story from here.

Yeah. And so Simon when does that change?

When does the market realize what you were talking about?

Is there like an opportune window to get in there?

Well for Japan, we think. We think that ultimately one of the

things that has been holding things back is just the lack of supply of Japanese

bonds for the markets to buy. The Bank of Japan is likely to start to

pull back on their on their inbound purchases.

That's going to create some more duration supply to the market.

And we think that that can start to allow more risk premium to build up in

Japan. But we think that the risk reward right

now is very attractive, both outright to be underweight Japanese bonds, but also

to be underweight Japanese bonds versus some of the markets in Europe, which we

could see for to lower yields.

So I'm very quickly, any worries about some of the auctions in the US?

I mean, obviously, this has been a fascinating subject and the market has

has struggled over the last six months or so to really calibrate how to price

the fact that we've got an enormous amount of duration to buy.

When you look out over over the medium term, and it's one of the reasons that

in our duration positions be tends to favor steepness, but I wouldn't

overstate the risk that comes from from the bond supply.

I think that the Treasury have made a lot of progress in giving the market a

lot of transparency and visibility about what we're going to get in terms of

duration supply. I think what investors sometimes under

focus on as well is that private sector duration supply is likely to be quite

low. This is one of the reasons that leaves

us constructive credit markets. And we think that we can stay in this

sort of tighter for longer environment because the incentives to issue debt are

much, much lower than has been the case over the last ten years or so.

And that's ultimately going to be something of an offset to the very

heavy, heavy duration supply out of the Treasury.

But for sure, we're probably going to be living in a materially higher turn

premium environment than we've been used to for some time.

Simon, thank you so much. SIMON Anger there from a Goldman Sachs

asset management. Much more to come.

And this is Bloomberg.

Now energy giant BP is maintaining the pace of share buybacks as even as first

quarter profit fell by more than expected amid lower natural gas prices.

Meanwhile, the world's biggest oil exporter, Aramco, is to pay $31 billion

in dividends to the Saudi government and other investors.

Let's get more from Bloomberg's Middle East energy editor, Andre de Paola,

who's in Dubai. Anthony, thank you for joining us.

Dividends, of course, one of the biggest focuses for the big oil companies as

quarters. What's BP doing?

Yeah, good morning, our friends. Yeah, that's true.

Getting cash back to shareholders was a big theme across the the majors and the

big oil complex for this quarter. So BP largely missing on a lot of those

estimates. But kind of heartening investors with

that pledge to give back three and a half billion dollars in the first half.

And they've also made some promises of some cost cuts as well, too.

So trying to improve some of those metrics by taking some costs out and

then and then looking at that, that all important stock price issue for them

with this with this buyback issue. So that's really following a theme, even

as the oil companies are suffering largely lower profit because of some of

the slump in oil prices. Of course, from those highs of 2022 and

we saw all those companies posting bumper profits.

So, Anthony, how's Aramco's dividend policy developing and why is that so

important? You know, Aramco's got a pretty clear

dividend policy set up for this year. They've got a base dividend which they

want to keep growing and increase and they want to they want to have that

being progressive. And then they've got this special

dividend which is based on, again, that 2022 bumper year and 2023.

So that should be largely set out for this year.

They've had a roughly 20% increase, so about $120 billion in dividends, which

is going to be the plan for this year. But that's so important because that's

necessary really to go into those Saudi government coffers.

Saudi's got a lot of spending coming up. They're having to tweak some of the

project plans and cut back on some of the issues.

So they really need that income from Aramco coming in.

And so and so that's why it's very important.

But we're also watching cash flow and we're watching investment from Aramco

because, of course, those things can be impacted by that dividend that's going

over to the government. Francine

Anthony, thanks so much as always. Bloomberg's Middle East energy editor,

Anthony de Paola. Now coming up, Israeli troops seize the

Rafah border crossing in Gaza as hopes for a cease fire deal dim.

We'll have the latest on the Middle East conflict, next.

This is Bloomberg.

Israeli troops have taken control of the Rafah border crossing in Gaza this

morning, with Hamas saying all aid flowing through there from Egypt has now

stopped. Now, this comes after Israel's war

cabinet rejected a cease fire plan backed by the militant group.

I'm joined by Roslyn Madison, Bloomberg's EMEA news director, who's

been, of course, keeping on top of all these developments.

So. Ross, how much is this a purchase, a

precursor to a proper ground offensive in Rafah?

Well, certainly it's an important signaling exercise.

The fact Israeli troops have moved into the Rafah border area, the crossing area

for the first time since the conflict broke out.

And as Hamas and Arab media are saying, that's cutting off the flow of aid and

people into that crossing between Egypt and Gaza and really following the

airstrikes also that we saw on parts of Rafah last night.

It is that signaling moment, which is despite the fact that Israel has said we

will still go on with talks on a cease fire, we won't agree to the current

times, We're willing to keep talking. At the same time, they're making their

preparations for an offensive inside Gaza.

They're moving to get a lot of people out of the way that to relocate an awful

lot of civilians out of harm's way. And it's really saying no matter what

happens with those talks for a truce, our intent is still to go into Rafah

because our overall goal is to try and eradicate Hamas.

So what do we know about the current status of the cease fire talks?

Well, Israel says it's willing to sit down and keep talking, although it

rejects the current agreement, the one that Hamas said it would, it would sign

up to. And there's a lot of disagreement over

small amounts of wording in those talks, but it's really about what the language

language would be in that agreement for a ceasefire that would be the prelude to

a proper end to the war. How does this ceasefire pave the way for

that war to end? That's what Hamas wants.

Israel says it wants to be more open ended because obviously, again, it wants

to have the option to keep fighting against Hamas inside Gaza.

So we're going to see the talks continue, but there's not a lot of

prospects for an agreement. And time is obviously running out to use

that cease fire to stop an offensive inside Rafah.

Roz, thank you so much. Rosalind Matheson there, Bloomberg's MTA

news director. Now coming up, comments by the US

Treasury secretary are piling also more pressure on currencies such as the yen.

We discussed the strong dollar and of course, what it all means for affects.

This is Bloomberg.

Well. Uber soars after outperforming

expectations in the first quarter as wealth and investment banking beat.

Actually, it's a good momentum. May remember in the fourth quarter, we

also had a very strong performance in banking as we integrate the new

colleagues from Credit Suisse on our platform, we started to see the pipeline

developing. We are able to execute.

Aramco, the world's biggest oil exporter, keeps a $31 billion dividend

payout despite little profit, while BP maintains a pace of share buybacks

despite missing estimates. And Israel rejects a cease fire proposal

backed by Hamas. Hours after the militant group agreed to

the plan, well, Israel vowing to push ahead with military operations in Rafah.

Well, good morning, everyone, and welcome to the Pulse and Francine Lacqua

here in Zurich. Now, Chinese President Xi Jinping has

called on France to help fend off what he called a new Cold War.

She is on his first visit to Europe in five years with the aim of resetting

ties with the European Union. So let's get more from Bloomberg's

Carolyn Conant in Paris. Catherine, thank you for joining us.

Has there been any progress made between the two leaders?

On the geopolitical front, we can't say there has been any progress, really,

even though the President Xi called for a cease fire in the Middle East shortly

after you had these airstrikes on Rafah in Gaza.

But Michael did try to use China's support in order to weigh in on the war

in Ukraine. You know, the relationship with

President Xi and the Russian president, Vladimir Putin, has been quite close.

And in fact, Vladimir Putin will travel to China shortly after she returns from

Europe. On the trade front, it was also quite

frictional because you had the EU Commission president, Ursula von der

Leyen, who participated in the first trilateral meeting with President Xi,

and she had very tough words criticizing China's production surplus, saying the

world cannot absorb it all. And the EU was ready to use all the

available tools to protect itself. President Xi rebuffed all of these

calls, saying that China does not have an overcapacity issue.

And in fact, President Macron had a much more pragmatic approach of saying that

the trade policy of the EU should remain independent, meaning independent from

the US, who trying to distance himself from this position of von der Leyen.

There wasn't any major business deals announced, only a few cooperation

agreements in the aviation sector, for example, or the cosmetics sector.

But President did have a small victory when it comes to cognac, saying he was

hopeful that China would abandon their measures against the French cognac

makers. In fact, Merkel gave a President Xi as

gifts two bottles of cognac, one from NBC and one from Rémy Cointreau.

And today, as we speak, they are landing in the arena in the southwest of France

for a little bit of an appeasement and a little bit of a fun side of the trip.

Merkel will take President Xi to the PM and in montaigne's perhaps to appease

the frictions from yesterday. Yeah, quite, quite amazing, actually.

Extraordinary curling. I think he's taking him to where his

grandmother lived and grew up. So I guess it's quite unusual.

It's as a sign of friendship to bring him there.

Accounting Council there in Paris that will follow, of course, President Xi's

visit to the mountains. We also look at the Bank of Japan, the

yen remaining under pressure and some in the market think it could slide back 260

per dollar. Now, that's in the wake of comments by

the Treasury Secretary, Janet Yellen, who said the US expects interventions to

be rare and consultations to take place while our next guest says affects

intervention is not credible. And Japan is following a path of benign

neglect for the yen. Let's discuss all of this with George

Avalos, global head of effects research at Deutsche Bank.

George, first of all, thank you so much for coming in.

I've been waiting and pacing to actually have your your take on yen and what

happens next. There was an interesting actually line

from the top currency official in Japan Masato Kanda saying there was no need

for the government to intervene if the market is functioning properly.

But we also understand that the BOJ governor is currently possibly meeting

with the prime minister of Japan. What do you think they're telling each

other? Thank you, Francine.

It's great to be back on your show. So it's interesting because you're

starting to see some divergence between the rhetoric coming out of the DOJ and

the actions of the Ministry of Finance government.

You actually gave an interview to the Peterson Institute just a few days ago

where he talked about inflation not really being a major problem, as in

they're still trying to get it to 2% in the at the BOJ meeting itself, he was

talking about the yen not being a huge driver of the economy, not being hugely

relevant for inflation. And then we got mof intervening.

I think the ministry of finance intervened because price action did

start becoming disorderly. You did see very large moves that were

unusual as we went up and broke key levels.

But at the end of the day, the fundamental driver of yen weakness is

the fact that real rates in Japan are extremely negative.

They're below -2%. And as long as that's the case, we think

the bank of the bank and as long as the Bank of Japan doesn't hike rates

expeditiously, we think the yen will stay weak unless you've got a view of a

US recession, which we don't have. We're just getting actually some

breaking news from the DOJ governor saying that he discussed the effects

with the prime minister. He also says they're closely monitoring

the recent Essex situation. I mean, that was probably expected.

I'm sure they are monitoring. So you're you're not expecting any

meaningful intervention because of what you're saying on real rates.

I mean, is there if they wanted to intervene, would that actually not make

a difference? I think it's very likely we did see

intervention. If you look at the Bank of Japan current

account data, we'll see confirmation of that in a few weeks.

But actually the intervention we saw was very much in line with history.

It was we saw a two week move in dollar yen of more than 4%.

So the price moves were extreme. And I think the MOF Ministry of Finance

is becoming quite open, that they don't want very large disorderly moves.

We have to remember that dollar yen moves by 10% higher over the course of

this year, more than 10%. And they didn't do anything.

So they intervened when the move became disorderly, as they said they would.

And I think that's fair enough. But in terms of managing to get the yen

structurally stronger, it's all about the Bank of Japan.

And as long as the Bank of Japan doesn't have urgency, you'll see this very

negative real rates which are prompting these continuous outflows from the

Japanese. So at the start of the year, for

example, you saw record outflows from Japanese investors into US equities,

into foreign assets, and they're doing very well out of those investments.

So you need the real rate to change out of Japan.

Do we sometimes forget? I just came back from a family trip to

Japan, and actually, it felt like everyone was there from all over the

world to try and catch a glimpse of these cherry blossoms.

I mean, even weakness could have its advantages.

Absolutely. And in a piece in a piece we wrote a few

a few days ago, we said, if you look at the Japanese economy, as you mentioned,

tourism is doing very well because it's it's very cheap.

But I think at the core of the issue is when Japanese real rates are so low, it

actually creates fiscal space for the government.

It allows for asset price reflation. And if you look at the level of

inflation in Japan, it's very different from two or three years ago in the US

and Europe, where we were at levels of six, seven, 8% inflation.

In Japan, it's a 2%. So yes, the yen is contributing to some

inflation, but the level of inflation discomfort is much lower and that's why

you have consumer confidence, which is actually at cycle highs.

In contrast to the US and Europe. I'll mention one thing on the.

Sorry, go ahead. No, go ahead, George.

One last thing on the tourism. As you said, you've been there.

It was very cheap. I have a number of colleagues have been

there and they observe the same thing. But if you look at the trade balance,

yes, it's moving in a more positive direction.

So Japanese exports are becoming cheaper.

So the Japanese are able to export more, but it's not into a huge surplus.

The trade balance is not at extremes. So that's telling you while dollar yen

valuations, when you look at them on a chart, they look very extreme.

It's not yet translating into massive export outperformance and to a huge

current account surplus. So perhaps these valuations are not as

extreme as history may imply. George, what's your take on Janet Yellen

and actually her appetite to let intervention?

She was at a press conference a couple of weeks back with the finance minister

of Japan and Korea and seemed to suggest that, yes, dollar strength is a problem

for a lot of people. But then she seemed to also be walking

back on some of those comments in the last couple of days.

So I thought that was a fascinating comment because as you alluded to, we

did have a joint statement from Korea, the US and Japan, about currency moves,

and the market interpreted that as potentially the U.S.

Treasury validating an intervention from the authorities.

And it was a bit of a walk back in terms of expectations of intervention being

that it's rare when it happens. I think it's also interesting if you

contrast that with some of the comments coming out

potentially from President Trump in terms of the levels of volume being too

high and stories around changing dollar policy.

So there is a bit of a difference emerging between the current

administration where despite a strong dollar, which is creating pain in

manufacturing, this insistence on maintaining the G7 commitments and also

the separation between Treasury and Fed, that is coming up as a divide between

the potentially the approach of a potential second Trump administration.

So as far as the dollar direction goes, we are very attentive to rhetoric on the

dollar, especially potentially from Trump administration officials.

And does that rhetoric eventually translate into a weak dollar policy?

So we are dollar bulls, but we're watching this issue of weak dollar

policy as a potential issue for the dollar over the next few months.

I know Fed expectations are moving all over the place, but what's the

percentage chance of a rate hike at this point from the Fed?

I think it's still quite low because even though you have headline inflation,

core inflation, which looks stuck around around high levels, if you look at

everything else the Fed is looking at. So, for example, the labor market, all

the key indicators of slack in the labor market, they are building this onus

equivalent and rent issue, which is keeping inflation again elevated.

All the forward looking indicators are coming down.

So I think the bar, as communicated by Powell, is very high for a hike.

This being said, if inflation does stay very sticky at these levels for the next

few months, I don't think we can rule anything out.

And as you mentioned, the market was pricing 50 basis points of rate cuts

this last March. And we saw how uncertain and how things

can change. I think the key issue when you look at

the US economy and the key reason that's driving this structural outperformance

versus the rest of the world is number one, fiscal policy.

You just have this continuously expansive fiscal policy which you've

never seen before, much larger than the rest of the world.

Now, if that was to persist after the election, if fiscal policy was to be

even more expansionary, that would be a major inflationary driver.

And at the same time, you have an economy that's extremely deleveraged.

So if you compare private sector leverage in the US versus the rest of

the world, it's extremely low. And that's what's providing the

robustness. And I think the consistent US

outperformance over the last year or so. George.

Finally, we have the Bank of England on Thursday.

Some of the hawks have turned less hawks or less hawkish.

I mean, what are you expecting for the Bank of England and what does that mean

for Sterling? So our house view is that the Bank of

England does start cutting in June. I would say the risks to that are

definitely skewed towards later. When you compare inflation in the UK

versus the rest of the world, it looks a lot more similar to the US in terms of

it looks stickier. When you look at fiscal policy, again,

the rest of the world, Europe in particular is tightening policy.

In the U.K. it's it's thawing easier.

So I think that combination does justify to some extent the market not pricing

that many Bank of England cuts. And in terms of the pound, as long as

the market is in this soft landing scenario, which I think is a very

reasonable scenario to have, the pound's a high yield.

The UK has avoided a recession despite 5% rates and again here the UK looks a

bit more similar to the US because of low levels of private sector leverage

since Brexit. So if I put all these together, I think

even if you get a Bank of England rate cutting cycle, it will be gradual.

Pound stays a high yield, so we expect it to stay strong unless you get

recession. George, Brilliant, as always.

Thank you so much for coming on. George.

Marvellous there. A global head of ethics research at

Deutsche Bank on some of the effects moves that we're watching very closely

now. Coming up, more from our interview with

the UBS chief executive Sergio Moti as a Swiss lender Tops estimates.

This is Bloomberg.

So let's return to our top story this morning.

Uber shares are gaining the most since March last year after the Swiss lender

beat earnings estimates and returned to profit after two loss making quarters.

Now the chief executive said Germany spoke to us about the company's

performance and the outlook for the year ahead.

Actually, it's a good momentum. You may remember in the fourth quarter,

we also had a very strong performance in banking.

As we integrate the new colleagues from Credit Suisse on our platform.

We start to see the pipeline developing. We are able to execute.

And so it's very much aligned with our expectations of of improving the mix

between our markets business and our banking business in the investment bank.

So in the investment bank, where do you see the biggest strength?

I know we also heard about possible job losses in Asia.

Is Asia at the moment weaker than, for example, parts of the US and investment

bank? No, I think that we reinforced our

franchises globally. I think that's of course we are still

going through across the entire bank. We are still a lot of work to be done to

restructure the businesses and to bring them back

into even stronger profitability.

So I think that is a good momentum. We achieved almost a 10% return on Citi

one, which is still a third or 50% away from our final target.

So still work to be done. We always say that 2024 is an important

year and as we now approach the end of May, we're going to execute on our legal

entity mergers which allow us to unlock in the future

further cost savings in important year 2024, because it's also a more difficult

year to to 2023 now because it is a more first of all, we have two huge

milestones, the merger of our legal entities.

And the second one, and we start to do the migration of clients from the credit

suites platforms into the UBS platforms. So this is a very technical still

requires a lot of support and people to do to do that.

And but as we start to do that, we can unlock some cost savings, but also

unlock capital savings, funding savings and therefore,

you know, achieving our final targets to achieve 13 billions of savings by by the

end of 2026 for this year, we do expect half of that

being achieved. So six and a half billions, several.

When you look at global wealth, I mean, the outlook talks about interest rate

cuts again, how do you worry about things that are outside your control?

Well, things that are outside our control, you know, you always need to

wonder what's what can happen on the geopolitical front, what can happen on

on on any sudden change in the macroeconomic picture.

So I think that's we do indeed factor in our outlook for NII.

For example, the three rate cuts in the US Cup, the two rate cuts in

Switzerland, this can change and if it changes, may

be beneficiary to our NII, but maybe the underlying macroeconomic events is not

so positive. So, you know, we need to always assess

well, we are prepared for any scenario this.

Well, that was the UBS chief executive, Sergio Ramos.

Let's bring in our Swiss bureau chief, Alessandra, spiritual Alessandra.

I mean, look, he was on fine form today. He said, look, everything is in place.

But then, of course, this was capital requirements.

It's beyond his control. I'm surprised the share price is gaining

something like seven or even 8% as we speak.

I'm surprised there's not more worries about that, given how much capital

requirements they could need. Yeah, I mean, investors are really

liking the three times his estimated profits and that UBS reported this

quarter. So these were strong results.

And clearly investors think that this is a solid condition going forward no

matter what the Swiss government does. This is a big cloud.

This is a big uncertainty. And in Switzerland, if you want, there

is a bit of uncertainty. There has been so far a big honeymoon

also with the Swiss public. UBS swooped in and saved Switzerland.

They've saved Credit Suisse from a big embarrassment also for the whole of

Switzerland. Now, of course, there was a bit of noise

around or multi-speed most paid banker in Europe.

But these results show that UBS is delivering on what it had promised when

it took over Credit Suisse. But I mean, this is a problem left at

home. And usually you have your first fight as

a couple. I mean, is this a fight he was trying to

minimise, actually the impact? And at some point he also said, look, we

need more capital requirements to make sure that the system is safe.

But again, it's a overhang when you're trying to build profit and revenue to

compete with the Americans. Yeah, I mean, Switzerland went very much

in the direction of UBS to make it easier for it to take Credit Suisse.

It was very complicated. But now that he's shown that he can

deliver it, it is delivering it is delivering profits, even if it continues

this enormously complex integration. I guess there is a sort of big of a

backlash from the Swiss side and also the finance minister, Kelly Suter, which

was the one who orchestrated the takeover, has also said that she was a

bit concerned about the level of her market pay.

This is a bit of sort of a swing of the pendulum, but everybody has shown that

so far it can deliver what it has promised.

Alessandra, as always, thanks so much for joining us.

That was Alessandra speciale in Zurich. More to come.

And this is Bloomberg.

Well, Disney is expected to register an increase in subscribers to its streaming

service when the company reports earnings later today.

Now for more on all of this, we're joined by Bloomberg's Charlie Wells.

Hi, Charlie. So what will investors be looking out

for in the numbers from Disney? Yeah, for instance, so it's all about

Disney Plus and Parks. So we heard CEO Bob Iger talk a pretty

big talk earlier this year about the potential for streaming growth on Disney

Plus. This is something that a lot of

entertainment companies have really been focused on trying to grow.

Now, analysts are expecting some growth there, but perhaps not as big as Iger

was talking about during that important battle with an activist investor earlier

this year. But also, we need a focus on parks.

So in 2023, theme parks were actually made up 70% of Disney's operating

income. So there's going to be a lot of focus on

how many people they can drive to parks, particularly in Orlando.

So, Charlie, Boeing also disclosed part. I love Orlando, by the way.

Boeing disclosed possible missteps involving the 787 Dreamliner yesterday.

That's prompted investigation. What more do we know?

Yeah, for instance, so this is the last thing that Boeing really needs.

They have been under scrutiny since January 5th when a door plug blew out on

a 737 max. Now, this investigation involves a

different airline, a seven, eight, seven Dreamliner.

And what we know is that Boeing has alerted authorities that were that there

were potentially missteps in inspections on some of those planes.

We know that this is not an immediate flight issue, but it will disrupt

production at Boeing factories. Charlie, thank you so much.

Charlie, while there was a very latest on Disney and Boeing.

Well, that's it from Zurich. Bloomberg brief is up ahead.

And this is Bloomberg.