Biden Set to Impose Tariffs on China EVs | Bloomberg The Pulse with Francine Lacqua 05/10/24

Summary

Today's segment of The Pulse with Francine Lacqua covers a range of global economic and political topics. President Biden plans to introduce new tariffs on Chinese goods, while the UK economy shows strong growth, bouncing back from a recession. Geopolitical tensions continue, particularly in Gaza with Prime Minister Netanyahu vowing to continue operations despite potential U.S. sanctions. Additionally, the program discusses the impacts of these developments on markets and central banks, anticipating future actions from the Fed and the ECB, and touches on corporate news, including potential regulatory scrutiny of Boeing and summer travel trends according to IAG.

Takeaways

• 😀 President Biden plans to announce tariffs targeting Chinese TVs and strategic sectors, with a possible announcement next week.
• 📈 The UK has rebounded from a shallow recession with strong growth, marking the best performance in two and a half years.
• 📉 The Bank of England keeps the option open for a rate cut in June, following positive GDP data.
• 🌍 Prime Minister Netanyahu asserts that Israel will continue its operations in Gaza with or without US support, amidst threats from the US to withhold military aid.
• 🏦 The focus of global markets is shifting towards the Federal Reserve's upcoming actions and statements, particularly concerning the CPI data next week.
• 🚗 The Biden administration's strong stance on imposing tariffs on Chinese EVs is part of a broader global concern over China's dominance in the EV market.
• 💰 Tesla plans to invest over $500 million in its supercharger network, following backlash from reducing its supercharger team.
• 🌐 Xi Jinping secures rail and energy investments in Hungary, strengthening China's ties with Hungary amid EU criticism of overcapacity.
• 📉 Europe's electricity consumption has declined significantly since 2008, but a surge in demand is expected due to increasing data center activity.
• 🛫 British Airways parent company IAG reports strong summer travel demand across Europe and the Atlantic.

Q & A

What significant economic policy is President Biden expected to announce regarding China?

President Biden is set to unveil sweeping tariffs targeting Chinese TVs and other strategic sectors, potentially as early as next week.

How did the UK economy perform in the latest quarter according to the script?

The UK economy bounced back from a shallow recession with the strongest growth in two and a half years, showing a GDP increase of 0.6% in the first quarter compared to the previous three months.

What stance is Israel taking in the conflict in Gaza according to the script?

Israeli Prime Minister Benjamin Netanyahu stated that Israel will continue to fight in Gaza with or without U.S. support, despite Washington's threat to withhold more bombs if Rafah is invaded.

What recent developments are mentioned about Tesla in the script?

Elon Musk announced that Tesla will spend more than $500 million on its supercharger network, indicating a move to bolster the company's infrastructure following some earlier strategic reversals.

What is the forecast for the Federal Reserve's monetary policy as discussed in the script?

The script suggests that many Fed speakers are scheduled to speak before the upcoming CPI number release, hinting at potential policy easing. Markets are keen to understand the timing and extent of this easing.

What potential impact of President Xi Jinping's visit to Europe is discussed?

President Xi Jinping's visit to Europe is highlighted with his pledge to make more rail and energy investments in Hungary. This visit is seen as strengthening China's ties with Hungary amid EU's critical stance on China's overcapacity in exports.

What concerns does the European electricity market face according to the script?

Europe's electricity market faces challenges due to aging infrastructure and insufficient power grid investments, which may struggle to meet surging demand driven by data centers and electrification.

What insights does the script provide about the Bank of England's future monetary policy?

The script suggests that the Bank of England is expected to start cutting rates possibly as soon as June, with the market underestimating the pace of these potential rate cuts.

How does the script describe the global auto industry's reaction to potential new tariffs on Chinese EVs?

The global auto industry is preparing for additional tariffs following a Biden administration review, with Europe playing catch-up to the U.S. in targeting Chinese EVs for tariffs due to anti-subsidy investigations.

What is the predicted impact of new data centers on electricity demand as mentioned in the script?

The script discusses predictions from Goldman Sachs that new data centers could significantly increase power demand in Europe, potentially by 40 to 50% over the next decade, due to their high electricity needs for cooling and processing data.

Outlines

00:00

📈 Market and Geopolitical Updates

The video opens with Francine Lacqua presenting a range of geopolitical and economic news. President Biden is expected to announce tariffs targeting Chinese sectors, potentially as early as next week. Britain's economy is rebounding with significant growth, avoiding a deep recession. Tensions are high as Israel vows to continue its military operations in Gaza despite U.S. threats to withhold military support. The focus then shifts to economic data and upcoming Federal Reserve communications, particularly concerning potential easing of monetary policies.

05:01

🌍 Global Market Reactions and Interviews

The second segment features discussions on the global market responses to U.S. Federal Reserve policies and the economic outlook. Interviews include insights from Monika Defend of the Amundi Institute, focusing on central bank actions, inflation expectations, and market predictions. The conversation touches on geopolitical tensions, the potential impact of central bank policies on markets, and the overall economic environment, with an emphasis on earnings season and its implications for market valuations.

10:04

📊 UK Economic Resilience and Bank of England's Strategies

This segment delves into the UK's economic performance, highlighting a stronger-than-expected GDP growth post-recession. Discussion centers on the Bank of England's monetary policy, with potential interest rate cuts on the horizon. Interviews with Bloomberg Economics discuss the implications of these policies and the expected economic trajectory. The focus is on the cautious approach to easing, the potential impact on inflation, and the strategic positioning of the Bank of England in comparison to other central banks.

15:06

🏦 Monetary Policy and Corporate News

The focus shifts to broader monetary policy implications and corporate developments. The segment covers the heated dispute between Spanish banks BBVA and Sabadell, with BBVA’s hostile takeover bid causing legal and regulatory ripples. Also featured are comments from the Israeli Prime Minister Netanyahu, asserting Israel’s position against U.S. diplomatic pressures. The segment ends with a discussion on the differences in monetary policy adjustments across various central banks, including the Fed and ECB, highlighting the complexity of global financial systems.

20:09

🌐 Xi Jinping’s European Tour and Global Energy Concerns

The narrative transitions to international diplomacy and energy issues. Chinese President Xi Jinping concludes a tour in Hungary with significant agreements, pushing against EU criticisms of Chinese overcapacity. The segment also addresses concerns about Europe’s aging power infrastructure, highlighting a report from Goldman Sachs that predicts a sharp increase in electricity demand driven by data centers and electrification, underscoring the urgency for enhanced energy infrastructure and policy adjustments.

25:10

🔌 EU’s Electrical Grid Challenges and Investment Opportunities

This section explores the challenges facing the European Union's electrical grid, described as the oldest and most outdated globally. The discussion includes insights from industry experts on the need for significant investments in power distribution to meet upcoming demand surges, particularly from data centers. The segment also discusses the potential benefits for renewable energy sources and the strategic investments by companies like E.ON in response to these challenges, highlighting a transformative period in energy distribution.

30:11

🏦 Bank of England’s Policy Strategy and Market Dynamics

The final segment offers a deep dive into the Bank of England's current policy considerations and market dynamics. Governor Andrew Bailey discusses the potential underestimation of upcoming rate cuts by the market, the impacts of the exchange rate on economic policy, and the interplay between quantitative easing and market conditions. The discussion emphasizes the nuanced approach required in monetary policy to navigate the complex economic indicators and market reactions.

35:11

🛫 Aviation Industry Trends and Regulatory Challenges

This segment shifts focus to the aviation industry, highlighting IAG’s strong summer travel demand and Boeing’s regulatory scrutiny following an incident with Alaska Airlines. The discussion explores the broader impacts of these developments on the travel and airline sectors, indicating a potential resurgence in travel demand post-pandemic, despite ongoing challenges in the regulatory landscape.

40:13

🏎️ Formula E’s Growth and Environmental Impact

The concluding segment covers the evolution of Formula E, now in its 10th season, addressing its carbon footprint and sustainability targets. The segment includes interviews with executives discussing the integration of new technologies in the cars, the potential involvement of Chinese car companies, and the unlikely participation of Tesla due to standardization issues. The narrative highlights the sport’s rapid development and its efforts to align with environmental goals.

Keywords

💡CPI

CPI, or Consumer Price Index, is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In the video transcript, the upcoming CPI data is highlighted as a major focus for financial markets, indicating its importance in assessing inflation and guiding monetary policy decisions.

💡Tariffs

Tariffs are taxes imposed on imports or exports between sovereign states. In the script, there is a mention of the Biden administration preparing to impose tariffs on Chinese TVs and other strategic sectors, reflecting the use of tariffs as a tool in political and economic strategies, particularly in international trade policies.

💡Monetary Policy

Monetary policy refers to the actions undertaken by a nation's central bank to control the money supply and achieve macroeconomic goals such as controlling inflation, managing employment levels, and maintaining currency stability. The script discusses various central banks, like the Fed and the ECB, and their anticipated actions, which directly impact global financial markets.

💡Recession

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months. It is typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. In the script, the UK's emergence from a recession with strong growth is a key point of discussion, indicating economic recovery.

💡Geopolitical Tensions

Geopolitical tensions refer to conflicts or strains between countries or regions, often affecting global relations and economic conditions. In the transcript, such tensions are noted across the board, affecting market behaviors and the strategic decisions of countries, as illustrated by references to Israel and China's international relations.

💡Supercharger Network

Tesla's Supercharger network is a system of fast-charging stations built to charge Tesla electric vehicles quickly. The script mentions Elon Musk's commitment to spending on the network, indicating the importance of infrastructure in supporting the adoption of electric vehicles and the operational challenges involved.

💡Central Banks

Central banks are national banks that provide financial and banking services for a country's government and commercial banking system, as well as implementing the government's monetary policy and issuing currency. The script frequently references central banks like the Bank of England and the Federal Reserve, highlighting their role in economic stabilization.

💡Electrification

Electrification refers to the process of powering by electricity and is often used in the context of replacing technologies that use fossil fuels with those that use electricity. The script discusses the surge in demand for electricity in Europe, driven by data centers, and the challenges of transitioning to electric power sources.

💡Investments

In the context of the script, investments refer to the allocation of resources, usually money, in expectation of a future return. This includes discussions of investments in tariffs, energy, and infrastructure projects like those by President Xi in Hungary, indicating strategic economic and political activities.

💡Market Dynamics

Market dynamics are the forces that impact the supply and demand of goods and services in a market, thereby influencing prices. In the script, discussions around the impacts of monetary policy, geopolitical tensions, and other factors on market dynamics illustrate how various forces can affect global markets.

Highlights

President Biden set to unveil sweeping tariffs targeting Chinese TVs and strategic sectors.

Britain emerges from a shallow recession with the strongest growth in two and a half years.

Bank of England leaves the door open to a June rate cut.

Israeli Prime Minister Netanyahu insists Israel will continue its operations in Gaza with or without U.S. support.

Bloomberg reports upcoming Biden administration tariffs on Chinese EVs.

Elon Musk announces Tesla will invest over $500 million in supercharger network, signaling a move of damage control.

The European Union may impose additional tariffs on Chinese companies following an anti-subsidy investigation.

Fed speakers hint at potential easing of monetary policy amid key economic indicators.

Markets react cautiously to geopolitical tensions and mixed economic data.

The U.S. and Europe differ in their approach to imposing tariffs on Chinese EVs.

Interview with Governor Andrew Bailey discusses potential for earlier than expected monetary easing by the Bank of England.

Chinese President Xi Jinping secures support from Hungary against EU's overcapacity accusations.

Goldman Sachs report predicts significant increase in Europe's electricity demand due to data centers.

IAG reports strong summer travel demand across Europe and the Atlantic.

Bank of England hints at potential rate cuts, signaling an end to aggressive monetary tightening.

Transcripts

Newsmakers and Market Movers. This is The Pulse with Francine Lacqua.

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

here in London with the conversations that matter.

And here's what's coming up on today's program.

President Biden is set to unveil sweeping tariffs targeting Chinese TVs

and strategic sectors with an announcement possibly as early as next

week. We'll bring you that Bloomberg scoop.

Britain bounces back from a shallow recession with the strongest growth in

two and a half years. Meanwhile, the bogey leaves the door

open to a June cut. My interview with Governor Andrew Bailey

coming up. Plus, a prime minister, Benjamin

Netanyahu, says Israel will fight on in Gaza with or without U.S.

support as Washington threatens to withhold more bombs if Rafah is invaded.

So we have a lot to get through. A lot of geopolitical, of course,

tensions across the board. If you look at European markets map,

they're kind of edging sideways. Now, A lot of the focus will actually be

from the US. Here in the UK, we did have better than

expected GDP data or certainly the UK economy bounced back from a very shallow

recession and of course the pound edging higher on the back of what we heard from

Governor Bailey. So you can see Sterling one 2527 A

couple of other things we're watching out for is really treasuries.

So I would keep this at the forefront of your mind throughout the day.

We have many Fed speakers ahead of that really important CPI number.

Next week, we hear from Michele Bachmann and Neel Kashkari.

Again, all any clues about the timing of policy easing is something that a lot of

these markets will want to know. And then the focus in general is what

the Fed does in the coming weeks and the coming months.

CPI next week. We have a number of events that we want

to cover really well next week. But of course, CPI left, right and

center. Now on to a Bloomberg scoop.

And Bloomberg has learned that the Biden administration is set to impose tariffs

on China, EVs and other strategic sectors as soon as next week.

Well, the move follows a review of tariffs first put into place by the

Trump administration. So let's get more now with our Craig

Trudell, our Bloomberg Global Autos editor.

We thought, Craig, you know, waking up to the news that actually there were EVs

and tariffs, that you were the perfect person to first of all, try and

understand the difference between what the US is doing and Europe is doing.

But actually the Biden administration is going pretty strong on this.

Yeah, I think this is a case of of the US being a little bit out front in terms

of of targeting Chinese, EVs and the European Union playing a bit of catch up

in October of last year, opening anti-subsidy investigation, which by the

way, will will in all likelihood result in some additional tariffs to be

introduced as soon as or by July, at least on a provisional basis.

So I think this is the case that we're seeing a general sort of move globally

at this point of concern in the sense that, you know, China has become last

year the largest car exporter and EVs being a big part of that and being the

sort of future of the industry and something that the rest of the world is

concerned about, that becoming, you know, a trend with real staying power.

But. Correct.

So what does this mean for the China China makers?

Because actually there are many, many of them.

Right. We're going through the list.

I think when we saw each other a couple of weeks ago, I mean, there are many of

them and they're really subsidized by the government.

Yeah, I think the EU investigation and the sort of impending subsidies that I

think everyone is largely anticipating will come through, It's a matter of, you

know, how much more tariffs as opposed to whether there will be additional

tariffs. I think that's a much bigger deal for

the Chinese companies because they're really looking at the European market as

as one that they can crack. I think these moves by Biden may

actually not amount to a whole lot in the sense that I think the Chinese

companies have really sort of viewed the US as not open to them, that they are

not, you know, even entertaining the possibility of going into that market.

Even a company like BYD that has been really on a roll has viewed the US as

not an attractive market worth even trying to crack crack at the same time.

So Elon Musk says Tesla will spend more than $500 million on the supercharger

network. I mean, this is it surprising this this

is something else because he put this on as a you know, referring to it as a

reiteration. This is not a figure that I've seen or

heard out of Tesla. And it really smacks of in early 2019,

there was this Musk move to close a bunch of of Tesla stores, at least to

try to I think he did that very impulsively realized that he couldn't

actually close stores. His company was locked into leases.

He had to kind of do a U-turn. This really feels like a similar sort of

situation of damage control, of realizing that cutting almost his entire

supercharger team did not go over very well with his customers and and just of

lately his clients in the sense that he's partnered with a bunch of other

carmakers to offer his Superchargers. So this feels like a bit of activating

damage control mode, if you will even. Regret that may be going too far.

I, I do think that, you know, he he wanted to make a serious sort of make a

serious message, send a message to the troops of, you know, when I say I want

to cut costs and be in his word, hardcore, I mean it.

And this this really sent that signal in a way that, you know, was was quite

effective internally, even if it, you know, did some damage that he's now

having to clean up after. Craig, thank you so much as always for

joining us. That was Craig Trudell, Bloomberg's

global autos editor. Now joining us to talk about the markets

to talk about central bank action, Monika defend head of the Amundi

Institute. Monica, as always, thank you so much for

joining us. I mean, it's been quite a week.

There were a lot of earnings and now the pivot is really going to what fed

speakers and what kind of monetary policy will be left with in the US.

What do you think will drive markets going forward?

It would be the central banks, as you were mentioning, where the today the

GDP. That's how you so everyone is asking

what the Bank of England will be doing on that front.

We believe that the ECB, we start cutting in in June and later on how we

will have the Fed. So we will have the Fed delinking from

the ECB with all the consequences that this might imply on inflation and on the

central banks, that it is not in their mandate, but the effects consequences as

to be seriously monitored. I mean, I think you're still expecting

actually a Fed pivot in the second half. We could have that being supported by by

data. But the data has been all over the place

where certainly the Fed promised something in December that didn't go

through. Why has it been so mess?

Is it communication or just a much stronger than expected economy,

I think is the second one. So the US economy proved much more

resilient than anyone. I was thinking now what we see is the

rates are getting around 2%. So we do expect that eventually

financing conditions will tighten and this will start eroding the consumption

side. So this is where these low down will

will come from. Let's see, next week's CPI, CPI data and

the retail sales to have a more complete

view. But we believe the Fed will start

cutting in July. So, Monica, as there is more and more

policy divergence, I'm thinking of Bank Japan, but even maybe between the ECB

and of course what we're seeing with the possible Fed.

How do you play that in the markets? Well, on the direction front, we remain

quite flexible with a preference for the UK in particular, the short end.

We have a positive bias towards the Treasury.

And when it goes to the euro area, we are looking at the peripherals in

particular the BTP, while we are neutral on the euro duration.

Is there anything you want? I gather the markets are not really

constructive on right now where they should be.

I don't know whether it's even concern on geopolitics, but it seems like quite

a volatile market. But we also had a good earnings season.

Yes, definitely. What surprises me, as always, is this

agnostic view and positioning on the on the geopolitical front.

As long as on commodity prices, oil prices stay confined in that controlled

range, the market seems to ignore what is happening on the geopolitical front.

And if you look also at the election calendar, which is quite rich, I would

say for that for the second half still, the market is not taking any position.

But as you were mentioning, earnings will prove to be pivotal with this level

of the market. Valuations are quite expensive.

Therefore, it is necessary that earnings do not disappoint.

So, Monica, what's your preference when you look at US equities to go for

sectors? Do you stay away from from the big

seven? Yes, it is very difficult amid these

macro uncertainty and this level of valuation to have bold top down stories.

So we really do prefer to position within the sectors in in the UK market,

in the in Europe, we are balancing quality and in defensive.

And on the US market it is more on the equally weighted.

This is the market weighted index, but again it's more a bottom up let's say

these way market then at top down play. Monica, thanks so much.

Monica Defende, of course, head of the Immunity Institute, stays with us.

And we'll talk a little bit more about Bank of England and maybe some of the

opportunities or not here in the UK. Now, coming up, some relief for the

British Prime Minister, Rishi Sunak, as the UK economy bounces back from

recession, a stronger than expected growth.

We'll talk about that next. And this is Bloomberg.

Now the UK has bounced back strongly from a shallow recession.

GDP jumped to 0.6% in the first quarter compared to the previous three months,

higher than forecast and the best reading since late 20 2021.

Now let's discuss all of this and what it means for the body firing the

starting gun on easing cycle with Andra Day from Bloomberg Economics.

So and let's start with the GDP data better than expected after a pretty

shallow recession, but it's far from spectacular.

Yeah. I think the question now I mean it was

point 6%. We were expecting point four.

So it was a big surprise. And I think the question that everyone's

asking is, is this the start of like a speedy recovery and is growth going to

be maintained at this current pace? And we don't think so.

We're a bit skeptical. So we actually think that because

monetary policy is still in restrictive territory, that's going to put a lid on

growth. So the recovery will be broadly subdued.

And what we saw in today's GDP data doesn't really change that view, mostly

because when you look at the breakdown, you can actually see that a lot of the

strength that we've seen in GDP was driven by net trade and by a fall in

imports. And when you do look at the domestic

demand, which is the bit that's most impacted by monetary policy, then it

only grew by 22% and it's still below its pre-recession levels.

So in a way, right now, you know, it's this adds to risks to to to the

possibility that, you know, it will be a speedy recovery.

Then we're thinking, but we don't have enough to sort of change our view that,

yeah, it will be far from spectacular. I mean, it was really interesting.

So we basically had the Bank of England yesterday and we've talked about market

expectations, the governor, and it's clear that he thinks that the market has

kind of been mispricing their willingness to cut because of what

happened with the Fed, because they overpromised in December and then

couldn't deliver through. The question is once they start cutting,

they continue cutting. And Bloomberg Economics is quite bold

with your prediction. Yeah, we have like a cut at each

meeting. And I think the way to think about it is

that yesterday The View sort of signaled that it was uncomfortable with just two

rate cuts. And so we think that, you know, they

probably think that 75, maybe 100 is sort of a little bit more appropriate.

And that's even considering the fact that they have a pickup in inflation.

So inflation will go down to 2% on energy, on on energy prices.

But then the view, we expect it to accelerate to 2.5% later in this year

going into 2025. Still, in that scenario, they still

think that two rate cuts are not enough. And so what we differ from the view is

that we actually think that headline inflation will fall to 2%, but will

remain there for most of the year. Sort of it will pick up a bit, but it

was my broadly stable at 2%. And we think the view we will actually

be surprised on the downside by inflation and that's when it will sort

of gets more evidence that actually it can go at every meeting.

But a lot of it will depend on the inflation dynamics.

Those are those are central to do so. Yes.

So, so interesting. And I thank you so much.

And Roger there from Bloomberg Economics.

Now, later in the show will also bring you the interview with Bowie Governor

Andrew Bailey following yesterday's rate decision.

Still with us, Monica Defend head of London State.

And of course, I won't be Monica. I mean, Anna was explaining their the

view of Bloomberg economics and actually once they start cutting, could be in

June. They continue cutting.

A lot of commentators saying that's dangerous because they probably didn't

increase rates fast enough and there's a danger now they're decreasing them too

fast. What's your take?

Well, we we think that the Bank of England will start cutting as soon as

June. More importantly, the market is really

thinking that they won't do that much. We think there will be they will do

more. So whether it's full cuts still, we are

above market expectations and this mismatch allow us to be constructive on

the on the curve, in particular on the on the short end when it goes to the

readings that we do on the economic front.

Steve, on the manufacturing side, we see some some weakness that is less evident

on our services. And when it goes to inflation, the

direction is to 2% that we are not sure that we get there.

It would be something like a 2.23% on a two year rise.

And so we are pricing in more cuts than the markets and this is allowing us to

be constructive on the fixed income in the UK.

Short end of the curve. Well, Monica, why do you think I mean,

the markets seem to be mispricing. And again, a lot of people, as you're

mentioning, a lot of people think this is a communication problem from the Bank

of England. Or is it external factors and trying to

read the data honestly, the market.

But in general, in reading all of policy.

Monetary policy is extremely, extremely volatile.

I think what happens on the on the Fed down to the ECB so by no surprise,

probably might be related to the Bank of England rhetoric either.

No, the truth is that we are struggling in reading the correct pattern and

pathways. On the on the macro prints and reason

mean that after the pandemic there are some regime shifts in place that are

really challenging our traditional approach to macroeconomics.

Monica, as always, thank you so much for joining us once again, defend their head

of the Amundi Institute at a monday. Now, we continue talking a little bit

about some of the corporate news out there.

And Sabadell has accused banking rival BBVA of breaching Spanish laws with its

hostile takeover bid as tensions mount between the two lenders.

Now BBVA is seeking to buy Sabadell in an all share offer that values the

smaller rival at about €11.5 billion. Now, the Spanish government has said it

will oppose the deal or the bid. Sabadell board rejected the offer,

saying it significantly undervalues the business.

Coming up, the Israeli Prime Minister, Benjamin Netanyahu, strikes a defiant

tone against President Biden in his first public comments since the US

confirmed it was withholding bombs from its ally.

More on that next. This is Bloomberg.

Now, the Israeli prime minister, Benjamin Netanyahu, has struck a defiant

tone against President Biden in his first public comments since the US

confirmed it was withholding a shipment of bombs to Israel.

Now, speaking to American talk show host Dr.

Phil Netanyahu says he hopes the two leaders can overcome their differences.

I've known Joe Biden for many years, 40 years and more.

You know, we often had agreements where we've had our disagreements.

We've been able to overcome them. I hope we can overcome them now.

But we will do what we have to do to protect our country.

Let's now bring in Bloomberg Opinion's Mark Champion.

So, Mark, thank you for joining us. International calls, of course, to

Israel of sending the IDF into Rafah is clearly rising.

Right, with condemnation from many, many leaders.

What is their argument for continuing this offensive?

Yeah, it's it's interesting because they're being told by the US and others

that, you know, you're going to have a you know, whatever military gain you

have here, it's going to be a strategic loss.

The Israeli response is basically, you know, everybody wants us to have

some sort of, you know, day after plan in which there will be an alternative

authority and so on. And that can't happen.

Nobody is going to send any troops into, you know, peacekeeping troops or

whatever, into into Gaza, so long as there are two

battalions, I would sort of say four battalions of, you know, fully formed

Hamas troops still there with their commanders and everything else that will

be the nucleus for a reformed Hamas so that they can pose a threat to Israel

again. So they're they're you know, their view

is that they have to do this militarily and that no matter what anybody says,

they just have to sort of bite and bite down and do it and then, you know, deal

with the consequences and move on after that.

But, Mark, the U.S. position has has basically been that the

Israelis should not go into Rafah until they've moved civilians out of harm's

way. So where are we on that?

Yes, I mean, this has been the problem for almost from day one of

the war, if you recall. You know, at the very beginning, before

the land operation, President Biden, you know,

warned Israel, don't make mistakes that we made in Afghanistan and so on.

And so this has been a running sore where the US would say, you know, move

civilians and do what you have to do. What we've arrived at in Rafah is the US

saying, you know, it was saying move civilians before you do anything.

Now they simply don't trust the Israelis to do what they're supposed to do.

The Israelis have, you know, for the first time, really made secure areas,

you know, bought tens of thousands of tents, put them there, and people are

moving. You know, the UN said that in the last

day or so that 80,000 people have moved out of the evacuation area that Israel

assigned as sort of east of Rafah. But in fact, according to some satellite

reports by Sky News, they estimate that rather more have moved.

And it's not just from the evacuation area.

In other parts of Rafah, people are moving already because they know what's

coming. Mark, thanks so much for the update.

Of course, this is a story that we'll continue following very, very closely.

That's Bloomberg Opinions. Mark Champion.

Now coming up, we talk China. Xi Jinping also leaving Europe later

today with the firm backing of Hungary in their fight against the West's

accusation of overcapacity. Details next.

And this is Bloomberg.

Now President Biden is set to unveil sweeping tariffs targeting Chinese TVs

and strategic sectors with an announcement possibly as early as next

week. Britain bounces back from a shallow

recession with the strongest growth in two and a half years.

Meanwhile, the vote leaves the door open to a June cut.

Plus, the prime minister Benjamin Netanyahu, says Israel will fight on in

Gaza with or without U.S. support as Washington threatens to

withhold more bombs if Rafah is invaded. Well, good morning, everyone, and

welcome to the pulse of Francine Lacqua here in London.

So the Chinese president, Xi Jinping, has pledged more rail and energy

investments in Hungary following his visit to Europe.

Now, Beijing is counting on the prime minister, Viktor Orban, to push back

against overcapacity accusation by other EU nations.

Well, let's get the latest from Bloomberg's reporter, Scott Demovsky.

Thank you for being on. The president.

Xi will wrap up his visit in Hungary today.

How did it go and what did he actually achieve?

Well, obviously, it's this visit has been quite

stunning and quite a contrast to the visit in France previously earlier this

week and what President Xi Jinping pledges rail and energy investment in

Hungary. We're talking about investment to the

tune of almost €10 billion, although that comes with all sorts of strings

attached and loans. So it's hard to say exactly.

We're talking about 18 agreements and they're in they are about rail, they're

about energy, building various links. And what we are actually seeing in which

is kind of more controversial in that sense, there's also an agreement with

that will be signed with Huawei, where the national champion that that Hungary

has in telecoms is going to to develop a joint

cloud platform. So that's obviously one one

controversial thing, as you said. What he won is obviously this pledge

that the that Hungary does not. Does not it identify with this

description that EU is is is is having for when it comes to to exports from

from China that there's an overcapacity. This is something that that the EU has

raised several times here. Orban and Hungary has positioned

themselves as a sort of a hub for investment in Hungary.

We might, although it's not very clear, get another investment in a factory

today. There's already one.

But by Bhiwadi, Hungary is also a hub for for battery production for the EU.

So quite a chunky bit of investments that are coming from China to to to

Hungary after this visit. All right, Peter, thank you so much for

joining us. Of course, we'll continue watching the

movements of President Xi throughout the next couple of days as he goes.

Now, back home now, Europe's electricity consumption has fallen by nearly 10%

since a peak in 2008 due to shocks like the global financial crisis and Covid,

as well as deindustrialization and slower than expected electrification.

But what could change quickly? That could change quickly.

That's according to a new research from Goldman Sachs, with predicts a surge in

demand in part driven by the data center.

Well, for more, we're joined by the head of European Utilities Research at

Goldman Sachs, Alberto Gandolfi, who is an author of the report.

So I better thank you so much for joining us.

This is a fascinating report because it basically really puts electrification,

especially of Europe, at the heart of this new revolution.

Are we ready if we have more a more data center, for how much more electricity we

will consume? Simple answer.

And thank you for having me. No, we're not ready.

We're not ready because energy transition in Europe has largely

focused on developing wind and solar capacity, and it's been quite successful

at doing so. What has been neglected is the power

grid. And this is fascinating because data by

the European Union and Nexans suggest that the EU grid is the oldest in the

world, 45 to 50 years old. So we are almost reaching a crunch point

where we need to very, very quickly step up investments, particularly in the

medium low voltage power distribution. And we think some regions have

understood that. We saw recently E.ON essentially talking

about doubling CapEx in its power distribution investments in Germany, for

instance. But this creates a challenge because not

only investments need to go up in Germany, but in every single European

country and the United States are going through a very similar, similar path.

So this is going to create pressure on the entire ecosystem, on the entire

supply chain. And it's fascinating.

And so part of their beneficiaries are renewables.

But also in your survey, I mean, you say that, you know, the power consumption

could increase, I think between 40 and 50%.

I mean, that's a massive amount of extra electricity that needs to be generated.

And I think the time frame you gave for that next three years.

So even if we ramp up, even if officials, companies, politicians,

forces will never or will we be able to achieve that in three years?

Well, let me be clear. I think in three years we are going to

start to see unequivocal evidence about this pattern.

We think 40, 50% is a ten year development, but the ten year is

relatively quick in energy markets. You know, it takes 3 to 4 years to build

an offshore wind park. It takes a year and a half to build

shore. And sometimes permitting is only from

anything from 2 to 7 years, even grid permitting is very long.

So we are already falling behind. And I think actually electrification and

centers, as you correctly said, are the big drivers here.

And nine months ago, six months ago, nobody was talking about data centers,

and data centers could imply a boost to demand twice as big.

What we are going to see from electric vehicles and is a starting right now.

So this is why we think that, yes, it's feasible on a ten year basis, but we

need to start now that power demand is not, quote unquote, rocketing yet,

because once you start to see power demand go up four or 5% per year, which

probably is 2728, that would be way or 26.

That would be way too late now. But Alberto, I mean, some of the

conversations that also need to be had is that, you know, getting electricity

up fine, but it depends also on the source of electricity.

So if you get electricity through, you know, fuel that's not considered green,

then it also will make it harder to wean ourselves and do the transition.

So where do you think the main extra power grid will come from?

But it's it's a great question. I have to say that because the nature of

the clients that require this incremental electricity know the big

four, you know, the Microsoft of the Amazon and Google and so on.

And and so essentially those companies have very strict green targets.

So they will want the big share of this incremental demand to come from sources,

which could be wind, solar, could even be nuclear in in certain regions that

particularly the United States, I would argue.

But gas needs to be a transition fuel. As we've been arguing for a while, there

are several regions in Europe. Spain is a key example where there is a

very large oversupply of gas plants. So we actually think that several

countries in Europe are ready to step up production because we are starting from

an oversupply situation. Spain or Nordic, this does not apply to

Germany. Germany has to build very quickly not

only renewables but gas plants. The government is about to auction 15 to

€20 billion of gas plants that need to be built by 2030.

And if these auctions don't happen this year, next year, there's a chance that

the Germany would already fall behind. So again, it's a race against time.

And it's not just clean energy, it's also backup, because particularly data

centers require electricity, nearly 24 seven for cooling, for processing the

data, for transmitting the data. So I'll talk to me a little bit about

what that means for stocks. I know you say you favor these

electrification compounders. So what are those there?

Companies that you like? Yeah electrification compounders are

utilities that sometimes in the in capital markets are considered as DOL

bond proxies then you know just move with interest rates.

This couldn't be further from the truth. Right now we are probably at the eve of

a generational growth in earnings that the market is completely

underestimating. So what are the stocks that we like?

There are stocks that have big exposure to power distribution activities that we

expect to grow high single digit to low double digit per year between now and

meet of the next decade. So in the early 2030s and those stocks

sometimes stand also to develop renewables, which will also benefit.

So if you look at a company like E.ON, where 65% of Hybridised power

distribution in a country largely like Germany, which has completely understood

this issue, well, that's definitely a key beneficiary.

Other stocks of a similar nature include EML, SASE, or Embraer.

Those are the electrification compounders.

Then we should put the second group of stocks that are also going to benefit

from these the stocks that develop renewables.

The stocks that maybe have a portfolio of power to offer are the wheat orsted,

EPR and those stocks right now price in zero or in the case of out of the blue,

a negative value for future renewable growth.

So this this is a very big opportunity potentially at the eve of rate cuts

across Europe by central banks with this structural secular organic growth that

is going to be independent from any economic cycle in a way that actually

puts this stocks in a very good position, particularly these

electrification compounders we talk about they trade on an average PE two

years out of ten times the 20 year average.

So the mid-cycle PE average of a 20 years is close to 15 times that.

That discount doesn't make any sense given the organic growth we see ahead.

Alberto, thank you so much. Alberto Gandolfi.

They're head of European utilities at Goldman Sachs with an interesting report

out this week. Now coming up, our interview with the

RBA governor Andrew Bailey, who indicates that markets are underpricing

the pace of easing in the months ahead. This is Bloomberg.

Now the Bank of England has sent its clear signal, yet that rate cuts are on

the horizon, with Andrew Bailey indicating that markets are underpricing

the pace of easing in the months ahead. Now, the RBA governor spoke to us

yesterday after, well, the 7 to 2 vote to keep rates on hold.

Our forecasts are conditional on a number of things, but one of the things

that obviously I'll conditional on is we use the markets curve to set them up.

So I think it's important that if we you know, if we find the forecast with the

market curve produces a best judgment which has inflation below targets or

above target, but not at target at the at the sort of horizon.

We say so we say this is where we got to press collective judgment.

Is that now? It follows, I think and this is a

comment I made earlier, that what we're saying is, if may if is, of course,

critical, if the world evolves, as you know, that that forecast suggests that

was well, probably the case would be therefore a less restrictive part of the

policy. So it is generational.

Everything is conditional, is due to live meeting.

All make sense a lot. So is June likely?

Oh, that's a different question. I think the key points I would make is

that we have changed our view on the likely persistence of inflation on

second round effects. I know it's good news.

We think that we think there was evidence that suggests that it will be

less pronounced than we thought they would be.

But that's a judgment. And, you know, for me, I'm not looking

at, you know, particularly these three key indicators services, inflation of

pay and the quantity side of the labor market to really judge this persistence.

QUESTION how it will evolve. Governor, because you were quite upfront

about market expectations. Does that come from Ben Bernanke's

review that you will talk more about the markets to indicate more to the markets,

also what you're doing next? Well, we're not going to we're not going

to implement the benign review piecemeal.

So we're always going to spend a few months really sort of thinking quite

hard about what we do. And he raised the conditioning

assumptions as a points, actually. And on this question, which I think all

central banks wrestle with in various ways, which is how do you actually sort

of represent, you know, a future profile of rights to set up your judgments

without sort of getting yourself into a position absolutely nailed on, as it

were, a full review of rates two years out, which of course is just not

realistic to commit to. But but can it can we expect more market

commentary from you going forward? Well, we had a particular I think we're

we're in a particular situation at the moment.

I've said before it's a high bar. I think, for us to sort of come out and

comment extensively. But I think the point we we made, we've

made today, and I think we have to make it look.

Quite a lot of them. When we do the analysis, quite a lot of

the market movements of late appears to have been US assets originated, not us.

Yeah, there's always some of that of course, but it seems to be more of it.

And yet our analysis would be that inflation dynamics here are different.

The inflation dynamics in the US is a very different sort of situation in

terms of our economies. So there's a tension there and I think

that's the point we have to point out. But this is basically because the Fed

maybe overpromised the cuts in December and then couldn't deliver in terms of

2%. Well, I'm not I know I'm not criticizing

the Fed in any sense of judging the Fed. I think the US economy has evolved.

I mean, that's the... that's the fact. I mean, that's how it's evolved.

So I think I think the way it's evolved has been, if anything, to sorts of.

Put put in slightly starker relief, the difference of inflation dynamics.

Governor, are you worried about the second round effects of a cheaper pound?

Well, I mean, the exchange rate hasn't moved sharply, frankly.

It's moved to Assam because you'd expect that because it's a relative price.

So there's points I make about different inflation dynamics.

You'd expect some, but it doesn't move sharply.

So. No, I'm not.

Yeah, we will watch it very carefully. But it's not something that, again, by

the way, as we said in as we always do in setting up our commentary on the

conditioning assumptions. This time, actually, the exchange rate

hasn't been that much. Governor, there is an assumption looking

at history, that once you cut, you continue cutting now without prejudging

what you'll do. Can you give us an idea of how you see

the cycle different to. Well, one thing I would say about this,

which is sort of quite interesting and it's something that we looked at during

this round, it's quite soon the history of the NPC that most of the cutting

cycles cycle in inverted commas, have actually been prompted by some sort of

shock or other, rather than being what I might call a natural cyclical sort of

we've reached the top and now we go down to the streets of Moscow.

So we don't have a lot of I mean, I would just caution there isn't a lot of

sort of history, right? So so what you're telling us is because

you're you're not cutting in a recession, it could it could actually be

one and done. Well, I think that would be unusual.

But I would say, you know, I said earlier, nothing's settled.

No fait accompli is nothing's ruled out. Governor, what can you tell us about the

the play between, of course, interest rates and duty rates?

Some may find it confusion because they're they're pulling in different

directions. So the message we've always given like

beauty is that beauty operates in the background for us.

We don't think it has large impacts on terms of markets.

But the other points and this is really the critical point when we sit down to

decide on what the right interest rates setting is, we take into consideration

everything, including markets, obviously, and markets will have

absorbed, if you like, and taken into account the impact of Q2.

So in other words, Q2 is always there, if you like.

If there is any effect from cards, they will capture it because we'll capture it

in the movement of markets and then we will set back rates to reflect that.

But you don't think it's confusing for markets this kind of a pull?

I don't think so. So you're not you're not expecting it to

ended before the end of the year to make sure that there's no confusion of what

you're trying to do. To my mind, any difficulty if we get to

the point where we're going to cut interest rates to have cutesy going on

as well? Well, that was the Bank of England

Governor Andrew Bailey talking to us yesterday.

Coming up, IAG reports strong summer travel demand in Europe and across the

Atlantic in its first quarter results. More on the numbers from the owner of

British Airways, next. And this is Bloomberg.

Now the British Airways parent, IAG, has reported summer travel demand is strong

in Europe and across the Atlantic in its first quarter earnings.

Now, let's get more with Bloomberg's Sid Phillips.

I mean, this is an amazing story because basically a lot of people, me included,

book well in advance for their travel holiday.

So what does it tell us about the bright spots for the travel industry going

forward? So British Airways is obviously focused

on transatlantic travel and I and IAG, the broader group which owns Iberia and

Lingus, is also focused on Latin America.

And so they've seen a lot of demand for travel into those places, as well as

intra-European travel. And I think that sort of shows that

people are still sort of resilient in terms of booking their holidays.

And essentially what will be key is fares and where fares go in terms of

determining profitability. I mean, summer is the most important

travel season for the airline industry. And so essentially, this is crucial for

them to make their money. And they seem to be more bullish about

the prospects than the rest of the industry.

So turning to Boeing, because you cover a lot in terms of what is the SEC now

looking at the statements made by the company.

So the SCC at the moment is looking into statements made by Boeing in the

aftermath of the Alaska Airlines incident when the door plug blew out on

the 5th of January. And they're looking to see if Boeing

executives made comments that potentially misled investors and not all

the SEC investigations result in any sort of charges.

And it could well be that there's nothing there to be seen.

But it does it is significant because they're looking into Boeing's conduct

essentially in the aftermath of that incident to see what really went on

there. So, as always, thank you so much for

joining us. And, Philip, there was a very latest, of

course, on all of this news out there when it comes to travel and planes.

Now, Formula E is now in its 10th season.

And as the sport grows in popularity, questions are being asked about the

championship's carbon footprint and net zero targets.

Now for more on this, let's go to Bloomberg's Oliver Crook who's at the

Formula E Circuit in central Berlin. Good morning.

You have a pretty good gig. So you spoke to the chief executive

ahead of another big race. What can you tell us?

Yeah, that's right, Francine. So we're at the Tempelhof Airport here.

This really a 1920s airport here in Germany, but really today, containing

the future of racing potentially in Formula E, We've got the race that's

coming up tomorrow and over the weekend. As you can see, all of the car companies

here that are preparing their cars. This is the Cooper team here behind me.

And yes, speaking to the CEO really about this business and thinking about

this business is only ten years old, Francine.

So there are a ton of challenges for this business to try to overtake, say,

Formula One that has literally billions of dollars in sponsorship, an absolutely

huge fan base. But there's also a huge opportunity.

I mean, the technology in these cars is changing so swiftly.

The new generation of these cars is going to be 30 seconds.

It's going to be 30% faster. As I talked to them also about

attracting new car companies and trying to get the Chinese players into Formula

E. Have a listen to the Bhiwadi team.

I could see a kingly group team like Lotus or ZEEKR SAIC, who obviously own

brands like AMG. So absolutely, I can see the Chinese

thing. We actually have two Chinese teams here.

We have r t, but we also have envision what about a Tesla team?

I think Tesla is unlikely, and I'll tell you why I think it's unlikely.

So all of the teams here writes in a common battery, so I'm not sure that

Tesla would be so keen to run on a battery that isn't their own.

And Francine, the other reason he said that there probably won't be a Tesla

team because if they're new to the sport, they'll probably lose.

Never. Maybe a good idea to challenge Elon Musk

quite like that. Never a good idea that that much we all

know. Oh, maybe it's a good idea I think look

there at the Formula E circuit in central Berlin.

Well, Bloomberg brief is up next. And this is Bloomberg.