Asia’s ‘Sell America’ Moment, Japan’s Bond Sale Crisis Deepens | The Opening Trade 05/28

Asia’s ‘Sell America’ Moment, Japan’s Bond Sale Crisis Deepens | The Opening Trade 05/28

Good morning from London.
I’m Ana Edwards alongside Guy Johnson and Chris upset.
We’re an hour away from the opening trade.
Here’s what you need to know. Japanese long end yields jump offset
weak demand in a 40 year bond auction reflects ongoing concern about global
fiscal sustainability. Investors look for clues on the future
of air demand and the impact of chip export controls when in video reports
later today. Plus, Ukraine’s president heads to
Berlin after the German chancellor backs Keynes military strategy, while
President Trump says Vladimir Putin is, quote, playing with fire.
A quick check on these markets here. Weakness across the board, perhaps on
the sell off that maybe we were due, given the optimism we’ve seen baked in
on this side of the Atlantic. Your Stoxx 50 features down only 3/10 of
1% footsie 100 virtually unchanged. We’ll see how those shakes out at the
open. Several micro stories we want to keep
our eye on. The same time weakness in euro dollar
risk sentiment is lower on both sides of the Atlantic and the dollar is stronger.
We haven’t seen that combination in some time.
However, the dollar is weaker against the Japanese yen.
The bond market story there factoring into the facts piece.
The countdown to the opening trade starts right now. Wednesday morning.
Good morning. So I spent the morning thinking about
left hand side tail risk and the kind of the things you normally see during a
paradigm shift. Who would have had the Japanese 40 year
on their agenda as being something they needed to think about three months ago,
six months ago. And here we are this morning with that
long n bond that we’ve rarely talked about ever.
I can’t remember a time in my career and my career is quite long focusing on this
honor. And here we are, the Japanese bond
market. Yeah.
Who’d have thought it? Long duration Japanese bonds, largely
owned by the DOJ. And this is the epicenter of the action
this morning. Yeah.
Low volume and high volatility seems to be a feature of this market in a way
that perhaps some people didn’t see coming.
But if yesterday’s story was a story of contagion into the wider global bond
market, I suppose the good news, the line in the sand news is that today’s
move is not having quite such an impact into other global markets.
It’s certainly not having such an impact into Treasuries on the 30 year Treasury
yield up by two basis points. But just to backtrack, we are showing
you Japanese bonds here. We’re up by four, five basis points when
it comes to the moves in yields at the 20 year horizon.
The ten year horizon I was quoting there, the longer end up four or three
basis points. So we are seeing this move higher on the
back of a disappointing 48 weeks. And as you as you cite there, guy at the
weakest in around a year. Now, Governor, you wait to say they’re
watching the impact of the super long bonds on the short end because it’s the
short end that the central bankers often focus on themselves as that has a big
impact on the on the real economy. And that gives the market a sense that
perhaps there is some change coming in terms of the issuance structure.
All of these things seem to be on the table.
Is there a believability question here that they won’t change the issuance
structure? Because yesterday we saw the opposite.
We saw such a bid into the long end of the bond market, specifically because we
thought that that issuance change was coming.
So to see the opposite, I’m not really sure how to interpret it.
Do you interpret it as those fiscal deficit concerns, which are absolutely
on every part of the market, on every corner of the world, or do you say,
well, actually maybe the BOJ won’t change tact and therefore that bid that
you want onto the 40 year won’t be as strong?
So say, I don’t know. And that’s the problem here is that the
we normally spend hours and hours kind of going over the finance details of the
bits of the market that we’re focused on.
And we understand like in video numbers later on, we’ve got a pretty good idea
of kind of how in video plugs into the global economy and the things that we
need to focus on the Japanese fourth year, I have no idea about I have no
idea about the interconnections that are going to be formed as a result of what
is happening at the long end of the Japanese bond market.
And that’s the bit that I think is really interesting, is that we’re like,
we’re not in uncharted territory, but we’re in really charted territory and
that I don’t. And that’s the challenge for markets at
the moment. It’s fascinating, though, because Japan
has always been a little bit of a guinea pig for the United States.
So if we’re talking about from a I mean, this is a little bit of a different
story, but if we’re talking about the same deficit concerns in Japan as we are
in the United States, we’re talking about this haven like currency, the
dollar and the yen, kind of perhaps losing that appeal.
Is this a test run like a Scott Bessant watching this and saying, let’s see how
this goes and then maybe adjust our US issuance story?
I mean, there’s talk of fiscal concerns in both geographies, but the performance
of the currencies is quite different, isn’t it?
And as you say, maybe Scott bears watching that with interest.
And what we don’t understand about the 40 year in Japan, we have people at
Bloomberg who do. That’s the beauty of what, say, a large
finance, financially focused global media empire is that we found somebody
who does and we’ll be talking to them later in the program.
Absolutely picking their brain. But guy mentioned then video.
I think that’s a much more clear read through that we can have in these
markets, but I think is a little bit of a scare factor here because in media, on
the one hand, it’s the and we talk about this every quarter, they’re the A-plus
plus do student every quarter where like are they going to live up to
expectations or lofty expectations this time?
I think it’s the geopolitics of tariffs and the kind of story that meshed
together Suddenly. The export controls are something you
can quantify. You can see what that bottom line hit
is. They’ve already given some numbers, but
given this kind of tariff truce we’re on, does that narrative I was interested
to read some of the analysts comments this morning suggesting that they don’t
think the whole analyst community has taken on board the impact, the ban on
selling H1 C’s into China. So that kind of seems like old news
because they created this h-20 to sell it to China, which was itself a
replacement for the eight 800 that the Biden administration stopped them
selling in China. And you would have thought that the
analyst community were on board with this.
But it does seem as if that’s not yet fully priced in.
Suppose that could be an area where we look for more clarity today and still
constrained of. BLACKWELL They’re not.
They can’t do everything they want to do with their most cutting edge technology.
There is clearly still a great deal of demand for that, though I will still be
interested to hear what they have to say about the AI buildout and what is
happening there and how much demand there still is.
We know their supply constrained is demand beginning to come in a little
bit. And it was interesting, Morgan Stanley
making the point that the two aren’t necessarily linked.
So just because you’re not producing quite so many teams for China doesn’t
mean you produce more well powered chips for the US datacentre market, which of
course would be the other way. We would focus for us the other thing,
the team. Mind is Invit has just been touted as
investing across the world in the Middle East, in Asia, a lot during the Trump
administration. Do we get some concrete numbers about
what the Trump administration is promising on behalf of NVIDIA and its
chip community and what Nvidia’s actually putting to work there?
That’s that’s the the math I’m curious to see there’s been this kind of big.
Love, which is kind of I and everybody’s benefited from that.
Are we starting to see separation titration within that space?
Who is succeeding, who’s not? I think we’re starting to see failures
in the space. Are Google and Openai, the ones that are
clearly winning? Where is where are the kind of the
middle, where is the middle ground where actually there could be a are we are we
getting to the point where we’re beginning to understand the nuance
around what is happening in this space and invest to start acting accordingly?
Again, I think Nvidia will be interesting on that front.
Let’s talk about one of the headlines that I just read talking about what’s
happening with Russia. It does seem as if there has been a
fundamental shift at the White House in terms of the view of what needs to
happen next with Russia. TRUMP The language is changing.
Putin’s playing with fire that there’s hints of more sanctions.
It looks like this Lindsey Graham bill is going to be supported by the White
House. That seems to be the kind of the next
next kind of piece of action that we’re going to see.
Graham was writing a piece, I think it was an op ed in the journal or writing a
piece in the Journal talking about the fact that he is coordinating with the
White House. So it looks like more sanctions are
coming. But do they go far enough and do they
have a material impact in terms of what Putin is doing?
There is no hint at this point that the US is going to support further
rearmament of Ukraine. Ukraine is desperately in need of
interceptors in terms of air defense. Are we going to see those coming
through? How did the Europeans step up?
Zelensky in Europe today? Can we fill the gap there?
There’s a lot of unanswered questions around what happens next.
As you say, Lindsey Graham suggesting he’s working with the White House.
If we see more pleas from the White House themselves that they are really
going to back this build. And that would be, of course, a huge
move. But as you rightly say, is it going to
go far enough? Is it going to do enough to try and
bring Russia to heel here? And I’m reminded of the conversation we
were having yesterday, which pulled out some of the details of the Graham bill
talking about 500% tariffs on countries that import oil from Russia at prices
that are above the the cap that the G7 has imposed.
And that puts India in the crosshairs. That puts China in the crosshairs, of
course. And you wonder what the broader, wider
geopolitical implications of a bill that has such far reaching and sort of
geostrategic impact. You wonder what that’s going to be.
And that’s just the oil story sometime about copper and aluminum, which Russia
also supplies to the global market. But the list, the Lewinsky story.
Interesting. Greg Sullivan, our reporter in Dubai who
covers Russia from there, made the key point that you can get the green light
from Germany, for example, on those long range strikes, but they still don’t have
the machinery that it hasn’t been sent over just yet.
So I wonder if that changes after that meeting.
I am fascinated, though, by what Max is saying on the German military.
For 80 years the German military has been in hibernation and Mertz is now
talking about building Europe’s most powerful military.
Obviously, France and the UK have nuclear weapons, but he is talking about
spending a great deal of money to produce Europe’s most powerful military.
Just from a historical context point of view, I think that’s absolutely
fascinating. Let’s talk about where we’re going on
today’s show. We’ve got some great guest lined up,
three countries other than Aberdeen Senior research economists going to be
joining us. We’ll fold in what we know, what we
don’t know about what’s happening with the Japanese bond markets.
Erik Watson, Jp morgan, private bank, EMEA, head of investment strategy.
He’s going to be joining us. And KKR, EMEA, Co-heads Matthew Caprioni
and Tara DAVIES are going to be joining us a little bit later on a conversation
about what is happening within the wonderful world of private equity.
Krissy Absolutely. Lots to talk about, especially when you
look at the interrelation of the long and those long duration assets as well.
We already talk about some of the other things on today’s agenda.
We talked about Zelinski in Berlin, we talked about Nvidia.
There’s a couple of other things to plug to our global audience, which is of
course the Opec+ ministers holding a virtual meeting till today alongside the
minutes of the May 6th FOMC rates meeting as well.
So this is going to be two potential places where we may see some sort of
conversation around inflation and impact in either direction.
Yeah, I was just reading the Bloomberg economics sort of heads up on the big
Opec+ meeting that is coming and saying that the market is braced for another
411,000 barrels a day increase. But even if we got a pause, even if we
didn’t get that the market has been kind of opec+ has shown it’s shown its cards,
if you like, is it’s quite clear the direction of travel they approved of
these big output hikes and Bloomberg economics suggesting that this would be
one more step towards a price war within the energy sectors will certainly want
for headlines coming out of that one. Absolutely.
It’s kind of a big impact on the shale patch.
You’re already starting to see the effect coming through.
We’re getting to the level at which maybe it’s uneconomic to pump oil out of
the US shale patch. How does that change the equation as
well? What else you need to know?
This Wednesday morning, SpaceX has suffered a third straight setback for
its Starship program. The latest test flight saw the rocket
suffer, a leak tumble out of control in space and then disintegrate as it
hurtled back to Earth. Despite the failure, SpaceX emphasized
that it learns from every test flight. It is a test flight and will continue to
improve its systems with the ultimate goal of developing a fully reusable
rocket for transporting people to Mars and beyond.
Germany plans to introduce legislation that will put an end to fast track paths
to citizenship that currently allows. Some migrants to naturalize after three
years. The move is part of a wider effort by
the new Conservative leader, Friedrich Matz, to make Europe’s largest economy
less attractive to foreigners. The Cabinet is expected to approve the
bill later today and the Trump administration is moved to cancel all
remaining federal contracts with Harvard University.
In a letter seen by Bloomberg, federal agencies have been directed to review
their contracts and terminate those deemed as non-critical.
Sources estimate the contracts are worth more than $100 billion.
President Trump has been targeting Harvard over its diversity programs and
alleged anti Semitism. This comes as well as we see America
basically pausing foreign student applications.
Yeah, America thrives on foreign students coming in, feeding its tech
industry, feeding its its industry, feeding its knowledge base.
This does seem as if if this could have a longer term impact on what is
happening with the US economy. This is this is a key input into the US
economy. I suppose the argument that they are the
sort of opponents of that view of making is that at some stage yes.
And find their place within society and within the tech industry, others come
and are funded to a small degree by the US government but do have some US
government funding and then they go back home.
And I suppose that’s what that’s what the Trump administration, along with a
complicated anti-Semitism allegation, they get that come with a relationship
to the United States, an understanding, contacts people.
They know that relationship is in fact power thing, isn’t it?
Yes, a massive alumni network. It’s funny, I was talking to some folks
back home who were debating the story and a lot of the people who are who have
kids who are applying to colleges at the moment are suddenly saying that an
admission rate into Harvard is about to go higher because of that 30%.
That’s basically I don’t want they eliminated but eliminated from from the
student pool and might be as well. So suddenly got easier to send to
Harvard, which I thought was a funny take.
The other piece of this is the endowment as well.
And this is such an important piece, $53 billion setting the tone not just for
Harvard, but for all of the kind of university endowments.
That’s like massive. What about trillions of dollars of of
assets, whether it’s in the bond market, whether it’s in the private equity
market that could suddenly hit investors and that brings down valuations, which
is problematic for people who don’t want that to happen.
So we’ll watch this story from many, many angles, of course.
Coming up on the program, Bbva’s Sabadell bid is under review by the
Spanish government. Will check on those shares at the open.
Plus, Nissan looks to raise $7 billion to keep its operations on track.
We’ll bring you the details of that in this building.
Banks keep up. Next, back to the markets.
We’ll dig into the bond story and how global growth fares are keeping
investors on edge. If you have any questions, if you want
to get in touch with the team that puts together the program, I b post BTV go is
the function to use on your Bloomberg terminal Wednesday the 28th of May.
This is way back. Nothing’s really changed in the academic
environment. You just have policy uncertainty.
And I think people are just going to wait policy uncertainty out.
They do think there’s a light at the end of the tunnel, that there will be some
certainty of whether it’s the tax bill or some of the trade terms.
But I think they’re just waiting it out. Richmond Fed President Tom Barkin
speaking exclusively to Bloomberg. It was a really interesting
conversation. Go and have a listen to what he had to
say. Companies are basically just waiting,
not canceling projects because the economy still looks okay.
But what they’re not doing is driving forward with new projects.
They’re basically, as he says, parking at the side of the road, waiting for the
fog to clear. They’ve got their houses, lights on.
They don’t know what’s going to happen next.
That’s certainly one story that we’re focusing on right now.
The story that morning is what’s going on in Japan once again.
We started the show. I don’t understand the connections.
And what the importance is of the Japanese 40 years to the rest of the
global economy. Let’s try and get some answers on that
because you have it on senior research economist at Aberdeen.
Joining us around the table. Good morning.
I’m if you had told me three months ago that the Japanese 40 years was going to
be important and I should be paying attention to it and I should understand
the connections with the rest of the world.
I have said, now that’s come up, that’s to the left of left in terms of the
terrorists that I’m watching. But here we are.
We’re worrying about it. Japanese investors are super important
to the global economy. So I’m wondering how important what is
happening with the Japanese fourth year is to the global economy.
What are the contagion risks? Can you help me draw some lines here?
Yes, I think actually going into this auction, there was some expectation that
this would be weak. We had, I think, a series of events, a
bit of a perfect storm last week, which started actually with the Moody’s
downgrade. And for the US, that led to there’s a
lot of correlation across the long end of the bond markets, across developed
economies. And part of the root cause of that would
be concerns about deficits and the increase in in yields would be adding to
that problem of deficits, deficit financing.
So that was part of the problem. And that led to a correlation across,
you know, Japanese bonds and developed markets.
But on top of that, Japan specifically is sensitive because it has a structural
demand issue. There’s been very heavy issuance at the
long end of the Japanese bond curve. Demand from life insurance companies has
declined steadily over time. This is not new news.
No, no. It’s been declining for for a while now.
Good news we haven’t paid attention to. Exactly right.
And suddenly it’s becoming a focal point because of the correlation across
different market frames. But I think there are some good signs
here. I think, to be honest, today’s market
have a little bit of a jitters is quite small compared to last week’s move.
So we’ve had a few developments actually over the weekend.
First of all, in terms of trade, obviously US European trade, a U-turn or
a reversal of tariffs, that was one piece of news that does impact bond
markets as well as we can see. We also had the Minister of Finance in
Japan was is is talking to market participants.
They are taking this seriously and they are on top of it and that’s good news.
Yeah. So what what do we need to watch for
here that really stabilizes our thinking?
Is it in the hands of the Ministry of Finance?
And it’s all about whether the issue 50 is a two year to whatever is it around
fiscal sustainability, which is much more long term thinking from the
government or is it something that the central bank can deal with and step in
and pay attention to because they are flagging concerns around how the fourth
year affects the short end? What is it?
Which actor are we watching to take action here?
I would say all of all of the above, I think so.
Starting with the Bank of Japan, it’s going to be more difficult for them to
act. I think the next meeting, which is June
the 17th, that will be important in terms of what he says in the press
conference. It’s unlikely that they’ll change their
pace of purchases.
They have been going through. They have been tapering purchases for
some time now, but they might they are due to announce future purchase plans.
So that will be a key focal point. There could be some jitters going into
that meeting and around that meeting. That’s one thing.
June 20th is where you have the meeting between the Ministry of Finance just
three days later, the Ministry of Finance and Primary Dealers.
So this survey that we’re having now, that news flow will be continually
coming through and we will hear more about what the what the issuance plans
could be. So sure, I hear you on that.
But speaking to, I think the point that going into we see so much of this tumult
when it comes to the deficit story, we see it kind of have a ripple effect in
the states and back around Asia, where we’re not seeing it is hitting the
European bond market. And I don’t understand why.
And we still see it to some extent in the gilts market yesterday.
I think that’s where we haven’t seen in the other pockets that are having the
same deficit concerns and the same fears.
The French market, the Italian market, the Spanish market.
So I’m curious why why that contagion doesn’t exist in Europe to the extent
that exists in the states of some extent in the UK?
Yeah, I think that I think you’re right that they have been moving, but there
are there’s more idiosyncratic sensitivities in the gilt markets,
unfortunately. Yeah.
And that’s something that’s been persisting in terms of sentiment.
That’s something that’s persisted for the last couple of years because we had
that turmoil a few years ago from mini-Budget and Japan is very sound.
So it’s that relative sensitivity. I think that’s what we’re seeing in
terms of those relative yield moves. But I don’t think Europe is completely
out of the woods here. It’s just at the moment the focal points
are around this one auction, 28 auction, and then the 40 year auction.
I think they were just key focal points and that allow this sensitivity to and
divergence in yields. Do we need to be paying attention to the
inflation story in Japan? It feels like we’ve talked so much about
how import costs are going to increase by oil and the currency and etc., and it
just feels like a completely fallen off the.
Radar, at least briefly. When does inflation become tradable
again? Yes, I think the inflation story in
Japan, yes, it’s at historic highs. It is trending lower.
But if you look at the breakdown, what’s driving inflation at the moment, it’s
food prices and particularly rice prices have gone up 98% year over year.
So that’s a real driver there. If you take that out, the underlying
trends in services, core services, inflation is still quite stable and it’s
not quite in line with Target consistent.
So I think that’s why the Bank of Japan are waiting to see what happens with
inflation. And there’s a lot of uncertainty around
the data coming for the rest of the year actually.
So I’m actually expecting they won’t hike again until January of 2026.
So that’s Japan thinking about inflation and brings me to Europe and what we saw
yesterday out of France and we might see more of this.
So the French inflation number coming in lower than expected and really low by
recent historic standards. Lots of voices at the ECB claiming a lot
of success and probably rightly so, bringing down inflation.
Philip Lane saying nobody that the ECB is talking about dramatic cuts, but some
of these inflation prints from the largest economies in Europe at least are
starting to look quite low. Yes, I think there’s been, I think
across a number of different countries there that you’ve seen a downtrend which
is very, very healthy. But I think at the moment, what we’re
seeing with the impact of the trade talks and the uncertainty there, there
is a risk that growth will be weaker and again, that demand driven inflation will
continue to trend lower. So there is greater scope for the ECB to
start easing relative to other central banks.
So we do expect another couple of cuts this later this year for sure.
When does the trade war show up in US data?
I think the second half of the year, it’s all a bit scrambled at the moment.
Yes, it’s coming through in terms of surveys, but the hard data, In terms of
the hard data, you’re really watching the labour market data coming forward
and then really looking at different sectors as well.
Does it just suddenly show up? Are we going to get to the point where
we’re kind of nothing, nothing, nothing, and then boom,
I think not quite boom, I think will start filtering through.
It depends on which series of investment is on hold.
Hiring decisions are on hold, and nobody can make those decisions while we don’t
know what the parameters are. So that will start to filter through in
the activity data, I’d say Q3, Q4 onwards, and we’ll start to see signs of
it really building up at the end of the year.
All right. Coach Gavin, then senior research
economist over at Aberdeen, walking us through the dynamics of the Japanese
bond market and perhaps why nobody else, at least here in Europe, seems to be
reacting as fervently. Coming up, we’re gonna continue that
conversation and dive back into that market reaction.
Japan’s 40 year bond. It is our top story showing its weakest
demand since July. Further volatility in the global debt
markets. We’re going to dive into the ripple
effects there, the contagion story there and how much of this might just be a
kink in the curve. We’re going to get the latest next.
Stick with us. This is Bloomberg. We have a couple of pieces of CEO news
that I think are probably worth paying attention to this morning.
I’m going to start with silences. We should also talk about Remy.
Stellantis is naming, we understand, Antonio Valencia as its new CEO.
I remember Carlos Tavares out in December.
It’s been a while since this company has had a boss.
I think Carlos is a native of Naples, but really comes at this from a kind of
US angle. I think that is where the focus is
likely to lie. We’ve also got Remy out this morning as
well, naming Frank Marrone, I think as its new CEO as well.
Both, both companies, you could argue in a difficult spot.
Right now the complex is in a difficult spot.
The drinks industry is in a difficult spot right now.
New CEO’s coming in a new sense of direction maybe from both businesses.
But the science story is fascinating. I haven’t had I temporaries was out a
while ago. It’s taken a while for Alcan to figure
out exactly who he’s going to put in the role, but it does seem as if this role
suggests a big focus on the states. It’s fascinating because that’s also not
only is that a tariff story, but it’s a pain point for for the US as well.
15% drop in sales force to Lance’s the expectation was 12%.
So that’s a part that’s really bleeding. So you need that expertise as well.
I think Rémy Cointreau is dealing with the same story though, but coming at it
from a completely different perspective because yes, they are feeling the tariff
pain. Yes, they have to navigate that.
But no, they’re not leaning into the US expertise there.
Yeah, no doubt that having the right person doing these jobs is really
important, but both of these people are going to have to be real price takers
when it comes to a lot of the environment they find themselves in, so
that the tariff story, for example, certainly will loom large on their
agenda is, as you both rightly point out, let’s have a quick look at where we
are on markets then. And this is the features picture for
Europe is a little more lackluster than I was expecting to see.
It’s actually I mean, we saw gains in the US yesterday.
A lot of that, of course, was catch up for what Monday saw in Europe.
So there is that excuse. But we did continue to see some gains
after Europe closed and we factored in all kinds of reasons to be a little bit
more cheerful. A drop in yields, of course, trade
optimism, a rebound in consumer confidence in the United States.
So all of that could have been used as an excuse to send stocks higher in
Europe, But it’s not going to, it would seem, from the futures picture US
futures flat to negative as well. And this is the picture across the bond
market. And interesting to track that.
We do see very small movement in these European bonds, Kristie.
To your point, a little earlier on, you were talking about how, yes, we continue
to see read across from Japan to treasuries into gilts, but not quite so
much into other parts of the global bond universe.
Absolutely. And this has been, as our guest in the
last blog pointed out, a point of weakness for quite some time.
The markets are just now choosing to react to.
And we’re seeing that in two consecutive auctions that ended up being weak for
some of the 20 year and now in the 40 year, not traditional maturities, but
certainly something that twice in a row could cause some pain.
We are forcing yields higher this morning across the curve and that kind
of boosting the Japanese yen as well. We’re going to dive into those dynamics
with a true expert who could perhaps explain what is going on.
Ruth carson joins the program, the bloomberg g10 effects and rates.
Reporter joining us from singapore. Ruth, can you just explain to us what’s
happening here in this long part, long part of the curve?
Yeah, absolutely. It’s not every day that you come on TV
and the first thing that everyone wants to talk about is the 40 year auction of
Japanese government bonds. But it certainly bears looking at
because of the volatility caused by this traditionally sleepy part of the market
until recent times. So what’s happening is that the auctions
have been coming in, Weak demand has been weak.
Society Generale, for example, has come out today to say that the 40 year
auction results were unimpressive because of this fear of inflation, fear
of the unknown when it comes to Trump’s trade war and what that could do further
on to term premia and also the inflation jitters around.
So in many aspects, people are looking at Japan now as a litmus test,
particularly when it’s something as notable as the 40 year bond, ultra long,
you know, investor appetite for it. But yes, the spillover today has been a
little bit more muted. It’s interesting.
I think we’re all still trying to understand and figure out the
connections. Maybe there aren’t any this morning, but
I think it’s fascinating to pay attention to that.
Today’s big take is on Asia’s Sell America moment, how Trump’s policies are
turning US markets from a sort of beloved destination for Asian investors
into a source of volatility. And and to a certain extent, pain as
well. What do we need to think about when we
talk about this story and how much pain that could be felt?
And ultimately, are we going to see a deep dollarization in the Asian region?
It’s an incredibly important story to unpack.
I believe it’s $7.5 trillion worth of U.S.
investments by Asian investors that’s been building for the last couple of
decades. And so that is what is at stake.
What I have been reporting on and my colleagues have been reporting on,
talking to life insurers, pension funds, head of trading desks is that there is a
sense that we are a pivotal moment in history where this Titanic is finally
turning. People are actively questioning, should
we have that much invested in the US and ultimately the US dollar, its
treasuries, its US stocks and all that. And the general consensus is that
everyone appears to be moving. Now remember, it’s $7.5 trillion.
A little bit coming back into this part of the world can hurt can cause enormous
ructions. And we’ve seen that.
We’ve seen that in the Taiwan dollar. We’ve seen it in Sullivan Treasuries,
you know, in the aftermath of the April two tariffs.
And the consensus is brace for more vol to come.
This is just a start. Hmm.
We we like to think about this by geography because, yes, this is a bit an
ongoing topic of conversation. And clearly your big tech story sets out
very clearly where we’re seeing Asian investors questioning whether they want
to send all that money to the United States.
But I suppose the more immediate dynamic is just that in lots of geographies
around the world, investors are questioning whether they want long end
exposure to government debt, whether they’re nervous about fiscal
sustainability. And in that sense, maybe it’s not really
about dollarization. This story today, this week, last week
is really just about concerns around sustainability of government debt.
Absolutely. It is a global story.
It’s not purely a US centric story. Although Trump’s policies on trade in
particular, and rewiring the US economy is obviously exacerbating and augmenting
the risks here. But definitely there is a soul searching
among rights traders. And, you know, the term that we all know
bond vigilantes, are they actually gaining in power when all these dynamics
are in play? Certainly.
Certainly there is a case to be made that it is a global story.
Inflation fears are everywhere, and particularly in Asia.
That’s why we’re seeing currencies like the Taiwan dollar that has been weak for
such a long time, you know, and where rates are low and or that are definitely
feeling more of an impact in South Korea.
That’s another good example. Great.
Great to catch up. Thanks for the insight.
Really appreciate it. Ruth Council, bloomberg, g10 effects and
rates. Reporter joining us from singapore.
Let’s turn our attention to how some of this volatility is manifesting itself in
terms of company profitability. Citadel securities has posted record
profits and trading revenue in the first three months of the year, with $3.4
billion in net trading revenues and 1.7 billion in net income.
Bloomberg’s Charlie Wells has been crunching the numbers.
This is this is an impressive pick up on a set of impressive numbers last time
around. Walk us through what we’re seeing here.
Yes. So this is a 45% increase from the same
period last year. And it really is just kind of, you know,
the epitome of good volatility, right? This theme that we’ve been seeing all
earnings season of volatility, really kind of throwing a spanner in the works
of a lot of these companies. That is not the case for Citadel
Securities. So they are really seeing in the same
way that we saw for a lot of banks trading differences.
Right. They saw a lot of boost in their
trading. And I think this number that really
sticks out to me, it’s almost $10 billion that they brought in that
trading revenue last year. That is their largest haul since 2002.
So this just speaks to the fact that, you know, trading is really benefiting
from volatility. But in some ways, there’s also been a
secular change. I want to talk about this in a little
bit of a moment, but the retail trader, too, and I think that’s what’s really
interesting with Citadel, they do have that strong connection to the retail
trader as well. So it could be an interesting tale going
forward on the health of that trader. How long does it last?
The next four years, maybe? Yeah.
I mean, let’s see, do we keep continuing to profit off kind of changes or right
way bets as we go? I think the question here and I want to
get to that retail point. Citadel handles a third of US retail
trading, so they do have that strong connection.
We really saw them kind of get a huge boost during that meme stock 2021
episode, and that’s just kind of continued here.
And I think what’s been interesting about the retail trader, they were
responsible for 20% of US equity volume in that first quarter.
And I think you get to your question about does this continue?
Do we get a recession? Do we get to a point where that retail
trader doesn’t feel quite so confident? We’ve been hearing about this for a long
time, but we haven’t had a recession since that 2021 moment.
Tony, Thank you very much. PBS Tony Wells are the latest on Citadel
following in the footsteps of others and setting its own path.
Record profits, then for that market maker now gives Asia Pacific President
Iqbal Khan says he expects rates to come down in time.
He spoke exclusively to Big Bag at the UBS Asian Investment Conference.
We expect continued volatility. And that perspective, I think, being
diversified, thinking in scenarios. Yeah, that is absolutely key.
And we do continue to expect that rates will come down.
It’s a question of time. And and of course, as we see further
data come out and also just let’s not forget the uncertainty we still have
around tariffs and the environment itself.
So I do feel that while we will see rates come down, it’s a question of
timing. We’ve definitely seen a significant
growth of alternatives and alternative investments in clients portfolios.
It is still at a lower percentage when you think about an aggregated
perspective of wealth portfolios. So there’s probably still some way to go
in terms of diversification into also. That was UBS Asia Pacific President
Iqbal Khan there. And Christine talking about appetite for
alternative investments. We’ve given and we’ve sent this at the
top of the program. We’ve got a conversation with KKR coming
up. Given the focus on private equity or
investment in infrastructure and all those other areas of alternative
investing, interesting that UBS sees a lot more room for growth on that front.
It’s kind of the new popular trade, isn’t it?
Because it was private equity and private markets had their moment in the
sun, I won’t say two years ago at the same time that the carry trade was
really popular and term premium was a discussion.
And then there was just this moment where everyone said, hold on a second,
in volatile times and tariff uncertainty, do you want your market or
do you want your wealth, your liquidity wrapped up into something that you can’t
actually access for, say, ten years time or five years time, etc.
and yet it’s still having its moment? People are still throwing money at it
because there’s a question of where else do you go to get that same yield?
Yeah, there’s an issue that there’s so many kind of borrowing, burgeoning
issues with this sector. I’m also quite interested to find out
when we took KKR a little bit later on about what is happening with the overlay
of a cheap dollar. I kind of what is happening there.
How do you use this asset class to diversify?
How do you think about using it for that purpose?
Is it good for that purpose? Is it something that should people
should be thinking about? How does Europe benefit, not benefit as
we see private equity making a bigger footprint here?
If we do see tariffs coming in, how they how are they calculating that risk?
Yeah, which we’re all trying to work out.
But how is it working within this space particularly?
It’s fascinating as well, because a lot of these mega private players, because
to your point of how do you do that, there’s been a question of do you have
to be a large scale player to excel in the space?
Do you have to be a KKR or an Apollo, an equity, as opposed to a smaller player?
And that’s where you’ve seen divergence because they’re dealing with that
capital markets glut that you’re talking about.
But the bigger players are also having conversations with the the leaders of
Europe as well because they’re trying to attract that investment skill that they
can’t do in the public market. So a lot of these folks, hopefully some
of them that we’re going to be talking to this program, have had that
conversation with Christian Merkel, Emmanuel Macron and others.
Is it a signal that’s just a representation of the fact the European
markets are broken or not complete or not working properly?
The fact that normally you would you would think if you had the same markets
operations that we have in the States, in Europe, would they have the same role
to play? But because you don’t have cross-border
trade, because you don’t have single markets in financial services.
Is is Europe therefore a greater, more fertile ground for these people as a
result of that? Yeah.
What does it tell us about the role of private markets in Europe?
How much do we how much is that an exciting opportunity for investors and
how much is it an area to be concerned not to talk about?
Lots to talk about Is I is defense on the agenda?
We’re going to have to all we’re going to get some answers from KKR, co-head of
AMEA, an exclusive conversation around the table.
Joining us, Tara DAVIES and Mattia Caprio only joining us.
I didn’t about, I will say, an hour’s time ish, very excited for that
conversation. But coming up for now, we’re going to
look into what a new CEO at the helm of Rémy Cointreau could mean for shares at
the open that and your other stocks to watch next this is Bloomberg. 30 minutes, the market open.
We’re looking at a really unexciting set of futures right now.
As you can see, we’re going nowhere in a hurry.
What does that tell us about kind of where we are?
Are we, as Thomas Barkin was talking about earlier in the fog, trying to
figure out where we go from here? That’s kind of how markets feel this
morning. The consumer, though, in the states, not
feeling too bad right now and that apparently is catching criticism.
It’s a fascinating one because we’ve seen this dynamic before.
And there’s a couple of spots in a chart of this consumer confidence story that I
want to talk about. The data yesterday showing a biggest
boost in about four years. So a complete turnaround because
remember, the last couple of data sets have been the biggest drop in a couple
of years. So real volatility in terms of
sentiment. But I want to take us back into history
here, because this has really has a lot more to do with the stock market than it
does necessarily how people feel about tariffs.
In fact, if you were to overlay this chart with a stock market chart of the
S&P 500, that lines would looks fairly similar.
But I want to take this all the way back to Donald Trump’s first administration
here, because that’s really where the trade story and the tariff story first
emerged. And it’s right here in 2018, this drop
that you really want to keep an eye on, because that’s when the market started
dropping in the fall of 2018. Some of that had to do with the hikes
coming out of the Federal Reserve, the hawkish tone there as well.
But then you see that again, kind of rebound and then it becomes a very
choppy set of data as we navigate the trade war that under the first Trump
administration, we’re seeing a similar dynamic now where if you actually look
at the drops here in terms of tariff story, the real hit to consumer
sentiment, Ana, but a rebound as the stock market rebounds as well.
So do we need to even be looking at the shipping data in the ports of L.A.
and the ports of Long Beach? Do we just need to look at the S&P 500?
Yeah. Is it the S&P 500?
Is it the news headlines around tariffs that cut through?
Certainly something is cutting through to Main Street, isn’t it?
And having an impact on their expectations and their sentiment.
Let’s talk about the markets in 3 minutes.
Markets Live. Executive editor Mark Cudmore joins us
now. And Chris, he was talking there about
the bounce back in consumer sentiment, Mark, and that was just one of a host of
items that drove stocks in the US higher yesterday that that resilience that
we’re seeing that push higher. Okay.
It might come to an end today, but that push higher in US stocks has that kind
of something of a surprise. It’s been very impressive price action
in US stocks and like crazy. I you know I was quite stunned by that
rebound in consumer confidence. I think the nominal levels, you know,
are still way well down from where they were only a few months ago because we
really fell a long way. But it was quite a powerful bounce.
And we seem to be seeing this impact that we get a threatening tariff
headline. We got a Trump reversal and we nearly
seem to be in a better position than we were before, which doesn’t really make
sense because there is uncertainty for businesses.
There is raise costs for businesses. As we know.
You know, in April we talked a lot about we expect relief rally markets had got
over bearish on what is a very, very long term multiyear theme of the end of
US exceptionalism. But still this resilience has gone
further than I expected. Price action is very good, and I think
the pain trade here is to continue to squeeze higher.
So maybe in video beats tonight. That said, the backdrop, the long term
trend, we always said this you know guy asked whether in the fog right now we
are in the fog we knew that we were going in the fog because the hard data
is probably not going to show real pain until at least June and maybe not till
July. And therefore, we always knew that this
is going to be a really tough period to trade because the long term structural
trades are clear. The Sell America trade is valid dollar
weakness. Long term Treasury is going to stay
under pressure long term and the US stocks will underperform.
But are they going to underperform in a bull market?
A bear market? That’s what’s harder to know.
Mark. I’m trying to figure out the 40 year,
the Japanese 48. I’ve never cared about the Japanese 48
before in my life, and suddenly I care about the Japanese 40 year.
How is the Japanese 40 year connected to the rest of the world?
Why do I need to worry about it? Should I be worrying about it?
Is this some sort of systemic risk story that I need to be thinking about folding
into other asset classes? Yes, I think the short answer is yes, we
put enough time is going to go in the details that you know, for the details
probably read my colleague Simon White’s piece on this.
Excellent for a weaker microscope column.
But the fact is, Japan has this massive debt now.
Yes. A lot of the debt is owned by the BOJ
and its own domestically, but that doesn’t change the fact that they’ve got
this very, very large debt pile. And many people see the long term
outcome is they’re going to have to monetize it.
And now with rising inflation, rising yields, they’re in a bit of a negative
spiral there at the moment. And the fact is, if Japanese investors,
who are one of the largest holders of foreign assets around the world to the
US assets, if they bring capital home to buy higher yields in Japan, that’s going
to knock on consequences around the world.
So that’s the short answer. None of time for the long run.
All right. Well, putting on spot Mark, 20 seconds,
when does that sentiment bleed into Europe?
I think it will do. I think this is a this is a global debt
reckoning. But this is a really long term story.
You know, we’re debating this morning. Is this even a story for this year or is
it more for next year? I feel like we’re at the initial stages
of this debt, but how quickly it moves is really, really hard to predict.
These things go very quickly, then very slowly, and then suddenly they go off a
cliff again. I don’t think about the cliff yet.
A couple of years to watch, according to Mark Cudmore, perhaps.
We thank you so much for that analysis this morning.
Get more from him and the team, the long version as he says, Emily Ivy, go is the
function on your terminals. Go from the macro to micro get our
stocks to watch. With Joe Easton Joe on in so we’ve got a
couple of also stocks on the radar today.
Firstly this one standing out for me news that Nissan could potentially be
looking to sell a bit of their stake in Renault.
The French company we can see Nissan don’t really been an under former in
that market globally and therefore the company according to our reporting
looking to raise around $7 billion worth of cash and that stake on the Renault
shares could potentially be a target for them.
Then we’ve got Stellantis news of a new CEO coming in now.
He was previously the CEO of the American operations and that is where
they’ve seen the big drop down in sales in terms of the owner of Jeep and other
brands. And potentially that is going to be
taken as a positive if he’s able to turn around that brand there.
We can see that stock down around 55% on a one year basis.
That could potentially be a bit of positive news for them today.
Then a stock that is definitely not going to be positive according to the
calls and analyst reaction it latest. So we take this in wafers now, this is
the material that is used to make semiconductors and the company pulling
its guidance over in France. It has had a profit warning already this
year. In February.
We can see that stock down 50%. They’ve been hit by weakness in autos
and also in cell phones as well, seeing a lot of negative calls on that and
quite a few downgrades in terms of analyst price targets.
Well, keep an eye on soy tech today, then continuing the theme of CEO
changes, Rémy Cointreau. They’ve got a new leader as well.
Now the interesting point for me is that the new CEO is actually a trade advisor
for the French government as well. So potentially this is kind of playing
into the tariff concerns that have hit the drink stocks in the past few years.
Now we can see Remy, another one that’s been down a lot, right down around 60%
on a five year basis. We can see a lot of sales on that stock.
They have had a big slump in sales in general alongside the tariff issue.
So again, a bit of a refresh in terms of management.
Keep an eye on Remy, potentially positive news for that one today.
Thanks very much, Joe Easton, of course, our equities reporter.
Now the European futures picture looks slightly negative as the US features a
lot of positivity yesterday, certainly in the U.S.
but it seems we’re done with that. That was on Monday.
It felt quite squeezy. It sort of all changed over the weekend
market was I get felt like maybe actually the market was just a little
bit short and as a result of which we just squeezed higher.
There was probably money being pulled in.
I think somebody made the point earlier that it was maybe we’re getting towards
month end the week, we better get the 28th.
I guess you could probably say that there’s probably a month and factors
there as well. Anyway, Deputy Trade is almost upon us.
We’re 5 minutes away. That’s next.
This is Bloomberg. That was yesterday.
I’m not sure we actually get a got a clear picture yesterday as to kind of
how investor sentiment is shaking out right now.
The white line, I think, is basically kind of a marking time moment.
That’s the European session yesterday, which was largely open on Monday.
The US reopened yesterday and we got this rally.
Part of that was driven by the reversal on the trade story.
Apparently, we’re accelerating talks with Europe and it’s all going to be
great and nothing’s going to happen and nothing to see here and we can move on.
And the other thing is the consumer confidence look fairly rosy as well.
I think actually the second bit is probably the more interesting bit in
some ways. Anyway, the U.S.
rally quite strongly. But if you look at futures this morning,
it’s a bit mad. There’s nothing really happening today.
So we kind of had a little brief repricing.
It came Tuesday rather than Monday, but today feels like the first proper
session crazy of the week. Oh, it’s only natural if you start to go
rally into the close. Had a little bit of a pullback and
futures completely normal. That’s exactly what you’re seeing this
morning out of your stock. Nifty futures down about 3/10 of 1%.
I think that key point that guy made earlier about the rebalancing trade may
be what’s keeping these markets kind of cautious yet pretty cautious, aren’t
they? And he was just pointing tentatively
lower, pretty flat, flat to negative, let’s say.
Let’s have a look at some individual stocks that could be on the move.
And we will start with what we have learnt about the important things that
happen on your LinkedIn profile when it comes to going for a new CEO job.
One of those is experience in the US market that applies to the new boss over
at Stellantis. The other is experiencing trade
conversations that applies to the new boss.
Really quite right. So at both of those businesses, we have
new leadership coming into position and then we also focused on Spanish banking,
BBVA and SABADELL. We’ve heard, of course, that the
government is going to take its time on that particular M&A story and they’re
going to conduct their own review after the antitrust watchdog did the same guy.
Okay, here we go. Wednesday session, first proper session
of the week, I would argue. Let’s take a look at what we are seeing.
Here we go. We got a very flat picture, I think
likely to emerge, 5100 certainly delivering on that front.
First thing. Look at that.
It’s an exciting open, isn’t it? We’re down by 0.03 of a percentage
point. We’ll give it a whirl.
We’ll see whether or not we see further action or whether or not there are some
single stocks that we need to be focusing on.
But the market is back to kind of marking time, trying to figure out what
is happening, trying to understand the implications of what’s coming out of
Japan and the trade story and what the latest data are telling us about what
the picture looks like with the global economy.
Stoxx 600 is down an exciting 0.03%. The 4100 is absolutely flat.
The currency is absolutely flat. The dax is delivering an impressive 2/10
of 1% rise this morning. Take note of that and the IBEX is down
by 2/10 of 1%. I struggle to find a clear narrative out
of the numbers that we are putting up on the screen right now, Kristie.
I think I’ll join you in that confusion because it does feel like these are very
small moves, even on a micro basis that we are seeing.
I mean, you are looking at kind of a split market in terms of the ups and
downs, 262 stocks up 280 down. So again, really netting out to what
you’re seeing on on your screen right now, which is kind of an index level.
From a sector perspective, though, you are seeing basic resources, technology,
financial services and construction in the red, the rest in the green, but not
by much. Anna Yeah, I mean overall these markets
are flat, which is a little better than maybe we’re expecting, but we’re pretty
divided, don’t we, when it comes to the sector perspective.
So that doesn’t help us too much. Energy stocks are moving higher, retail
stocks are moving lower and everything else in between seems a bit of a a bit
of a mess as a couple of stocks stories that do stand out, one of which is
right, Mittal is up again. Friedrich Mertens is talking about
building the biggest, most powerful military in Europe for Germany.
Right. Intel continues to benefit from that.
We continue to struggle to keep up with what is happening in the defense space.
That certainly continues to be a narrative that is worth watching out
for. So Bay Systems is also up on that.
Safran is trading a little bit higher. Rolls-Royce, I think picks up on the
back of that as well. Even to a certain extent.
We are seeing Airbus. TALOS is also doing relatively well.
Okay. Let’s get another perspective on these
markets. Let’s bring in Eric White.
And it seems that the Amir head of investment strategy at JPMorgan Private
Bank and very nice to have you with us on the program, Eric.
Thanks for coming in. So we’re looking at markets that are
twisting and turning almost daily still on tariff news flow.
And do you have any sense you put out you’ve been thinking about the rest of
the year. I know.
And do you have any sense or what assumptions are you making if you don’t
have any sense of whether landing zone on time or seas, What assumptions do you
have to make about tariffs in the meantime?
I think it’s important to try to recognize what the approach is here,
which is a little bit outside the box. And it’s perhaps not what we’re all used
to in terms of the negotiation. And it seems fairly clear that it’s a
place where things start a little bit here.
There’s a goal to land to a bit more of a reasonable landing zone, and that’s
ultimately where we think things will will reside.
At the end of the day, perhaps a low double digit level on the overall U.S.
net effective tariff rate, which we think is something that can be
reasonably managed through a global economy that’s showing an impressive
ability to ebb and flex around it, particularly led by the U.S., where the
dynamism of the U.S. economy is showing an impressive degree
of resiliency. We think it makes sense to.
Strategies that will navigate this. But that flexibility has been important
and that’s chimes with what we were hearing at the White House yesterday.
You know that if this is a 10% tariff, then or maybe a little more than that in
the end, then this could be something that the U.S.
economy, certainly the White House was talking about, can handle.
It’s not going to be such a big such a big stumbling block, I suppose.
Is that your base case, then, that we don’t get a recession in the United
States? The data just sort of flexes a little in
the short term but bounces back. It is.
We believe that the US economy will ultimately skirt recession.
We certainly could have a degree of a slowdown.
I mean, ultimately tariffs such as these are an upside pressure on a degree of
inflation and a bit of a downside pressure on growth.
But as long as that does not go too far, a degree of a slowdown isn’t the end of
the world for an economy such as the U.S.
Remember, recessions over time are typically short term in nature.
The market typically moves ahead of that, and we are seeing that flexibility
of the US and the global economy. And it’s been noteworthy to what extent
are buybacks propping this market up? It’s helpful.
It’s a simple supply demand type of phenomenon and we expect to see more of
those as we go moving forward. The overall attractiveness to what’s
been happening with earnings in the US has also been producing a steady buying
hand that quickly came in amidst the the recent market turmoil.
And there’s obviously a big debate about the phrase US exceptionalism and to some
it ultimately ends up being something that sounds a little bit of an either
or. One of the things that I would encourage
focusing on is the fact that the US does remain the dominant center of tech, the
dominant center of A.I., a magnet for talent, a magnet for capital, and a
place with the most innovative free cash flow producing companies in the world.
And if you think about earnings growth going forward, one of the things that is
sensible to ask oneself is do you think the US will continue to produce robust
earnings on a 510 plus year type of time horizon?
And if the answer to that is yes, which we very much so think that it is, we
believe it’s sensible to stick with the US.
So I take that question. I’ll pose you another one.
The earnings guidance and the earnings increases you’ve seen in the States are
largely based on consumers being able to digest price hikes that have come down
from Europe and for the United States. But you look at the personal savings
data, you look at delinquencies data, they’re all ticking higher.
So that price hike, which are likely coming down the pike from Walmart
Target, name your company that Digestibility feels like a red flag for
the US. No, there’s definitely going to be a
degree of headwinds that face the consumer in the months to come and we’ll
see how the Fed might react to that. In particular, I think the payrolls data
over the next quarter when we’re more so in the tariff digestion period, to use
the word that you mentioned a couple of moments ago, that’s going to be
particularly important. The Fed often reminds us that there is
not the concept of the so-called Fed put, but the reality is as they focus on
their dual mandate, helping to sure ensure prices are reasonable, i.e.
help fight inflation and also help support the labor market.
If the labor market softens, I think we can expect a Fed reaction response if
the consumer struggles. But just yesterday we got a surprisingly
positive number on consumer sentiment in the US and that was encouraging to see
one that was largely driven by the equity market.
You can see that in the data as well. How does the Federal Reserve stop price
hikes though? So I don’t know that it can and
companies are going to do what is sensible for them, and that’s where the
health of the US consumer comes into play.
Can they digest these price hikes? What does it mean for the ultimate
levels of inflation? Those inflation numbers have remained
reasonable enough. We’re going to get some more color on
that this week, but you’re hitting on some of the key dynamics.
What is that mix between upside price pressure and downside pressure upon
growth? It sounds like you believe in Europe.
We do believe in Europe. So we we very much rather be in the US.
Yes, admittedly, we would we recently upgraded our disposition on Europe and
again, we try to view it not so much as an either or.
We believe that makes sense to stick with the US, but at the same time
complement what is typically heavy, long overweight positions in the US with a
greater degree of exposure to Europe. I am extremely enthusiastic by the
Draghi report. Like German infrastructure package, for
example. That is a big bang type of stimulus,
about 12% of German GDP, a quarter of the region’s overall economy, that type
of amount and that type of decisiveness is very encouraging to see.
And our hope is that it helps to continue to foster greater policy
support, more inflows, and that’s been supportive of the European and
international markets. It’s also a bit of the story of the
downward pressure on the dollar that flow of funds coming back to Europe.
Does it matter if I’m a European investor or a U.S.
investor? Keep everything in America strategy.
If I’m a European investor, the dollar hurts.
If I’m a U.S. investor, it doesn’t matter.
I do need to be a little bit more nuanced in what you’re saying in terms
of where I where my home market is, in terms of how I think about how I’m going
to be investing. It’s a great point.
The home base currency topic is a big one.
And it is fair to say that for us domiciled investors that are kind of
U.S. dollars all the way, so to speak.
They are typically a bit less sensitive to what happens with the affects market
overall. But for investors that are home base
denominated and pounds, francs, euros and so on, there is a greater
consideration of that. Ultimately, we think that U.S.
market performance in the quarters in years to come will be sufficient to
compensate, even if there is a degree of a softening trend in the US dollar.
And we are very much so in the cyclical camp for the dollar and not the
structural camp. And by that I mean we do not foresee
substantial risks of the US losing its base reserve currency status any time
soon. The dollar is still used in 90% of
affected transactions, two thirds of international debt, 60% of international
currencies, very high starting point. It is.
And it’s it’s status there, we think is very much so secure.
So if the dollar continues to soften, we think it will be gradual and relatively
cyclical in nature and not something that needs to be a tremendous concern.
Hmm. Can I ask about private markets and what
conversations with clients are like about how much exposure you want to have
to private markets? We’re going to have a conversation later
on in this hour, in fact, around infrastructure spending in Europe,
around private equity in Europe. And we heard from BBC about Khan talking
about how investors could still get more exposure to that side of things.
Is that an area of growth still could put a lid on now, I suppose is what I’m
interested in. So absolutely, to us it is.
And the two main areas that we’ve been leaning into have been relative relative
value macro and long short hedge funds. We think that their ability to even flex
with this uniquely unpredictable environment makes a lot of sense as a
cornerstone of portfolios. And then secondly, private
infrastructure. I love some of the attributes of some of
these private infrastructure strategies that we and some others invest in.
To me, it is very effective combination of three main things.
Number one, bond like consistency of cash flows, and everyone likes income
for a degree of their portfolio. Number two, extremely low volatility.
We’ve had a very smooth ride in the returns in some of these strategies.
And number three, almost zero correlation whatsoever to broader public
markets. So if you’re focused on things such as
what was just discussed in the prior segment, the level of JGBs long term
yields, government debt, themes and things along those lines, these types of
strategies can give you again, bond like returns but are really side on the side
and allow you to sidestep any of those government debt concerns.
So we think they make a lot of sense. Limits what limits your appetite for
private infrastructure. What’s what’s the what’s the negative
that we should watch out for? Because it seems to be a rich theme that
many people have talked about for a long time now.
Some people have concerns about the degree of liquidity or lack thereof.
Some worry a little bit if it’s gotten too much focus of an overall theme.
Data centers, for example, an area that there is almost universal optimism and
enthusiasm. Some people believe that’s got a
tremendous long, tremendously long run runway to run.
Others believe that it’s gotten a little bit, you know, too heavily focused on.
We focus on old fashioned things such as ports, roads, bridges.
We also have a strategy that we lean into for clients focused on long term
contracted shipping routes, so-called moving infrastructure.
So every not everything needs to be the I data center theme.
We have those we think those make sense, But a diversified approach within the
private infrastructure asset class we think can serve portfolio as well and
are going to catch up thanks to us. Really appreciate it.
Eric Watson is EMEA head of investment strategy at J.P.
Morgan Private Bank. Cool.
Since it was like this this morning, let’s take a look at what we are seeing
in the numbers. Fairly mixed.
I’m going nowhere in a hurry. Seems to be the the overall story a
little bit into this, a little sell off into the safety trade at the the right
hand side with Nestlé down a little bit. But I’m not sure any of these numbers
give you a real clue and a real kind of macro read as to what is happening out
there. Let’s talk about some of the stocks that
might, though, and some single stock stories that are interesting from a CEO
point of view. Joe, what do you got?
So one stock that is going nowhere in a hurry currently is soy tech, but that is
because we are in a volatility. How on that one we are unchanged on
that. But that is purely because there’s too
much volatility coming into that stock because they can’t actually open in
Paris at the moment. But we are seeing calls lower in the
pre-market indications, down around 15% on that one.
When I step away from my desk, keep an eye on the price on that.
And then in terms of the CEO news, stellantis edging very slightly higher.
That one is. Down around 50% on a two year basis.
So they’ve got the new CEO coming in. A lot of experience in the US and I
mentioned that he’s got a US experience on your LinkedIn.
You are likely to get a CEO position according to the statements we’ve seen
today, at least stellantis coming out very slightly.
Antonio Lopes coming in as new CEO on that on then we’ve got Rémy Cointreau.
Not so much a positive reaction on that one but it is a new CEO at the drinks
maker another stock down sharply and we’re not seeing much of a reprieve for
this one now again it is an internal appointment with some US experience at
least coming in for that one. In terms of that, one might not be
internal. I think that was actually the Stellantis
one too many CEO changes to keep notes about the important thing.
Rémy shares are lower at the moment. Then we’ve got Kingfisher over in DIY.
It is the owner of being Q here in the UK, of course, but actually the weakness
not in the UK. It’s Poland that is weak and also France
not looking good in terms of the construction sales for that one.
So Kingfisher Betway, international sales weighing on that one.
Once again, it’s been a bad run for Kingfisher shares.
Then in terms of share sales, we’ve got a lot a lot came through last night.
We had a big flurry of them galderma that is in the cosmetics space, a big
one. And then in Switzerland it was around
€1.5 billion. I believe in that one Ferrovial in
construction over in Spain and also strabag in Austria, construction as
well. Share prices, people offloading stock
following rebounds in some of those shares.
Keep an eye on those. Then finally to finish on L’Oreal
because Jp morgan warning in a note that the beauty market is weakening in both
Europe and in the US, they reckon that cosmetic sales make up sales, that kind
of thing is going to continue to slide and therefore they’re putting this one
on a negative watch. And we’re seeing L’Oreal coming down
more than 1% over in France. Morning.
L’Oreal is a negative view at Jp morgan today.
Joe, thank you very much. Yes, you’re right, Frank Merrily at Rémy
Cointreau the new higher there is an external hire and tapped into the story
that James is talking about that actually his most recent position was
that the Japanese cosmetics maker Shiseido, which he left just a little
while ago. So we’ll continue to focus on some of
these new CEO appointments across Europe.
Also coming up, another delay for Bbva’s bid for rival Banco Sabadell as the
Spanish government decides to conduct its own review of the proposed takeover.
We’re live in Madrid with the latest. This is big back. Welcome back to the opening train.
About 90 minutes into today’s session, seeing some green on the screen here,
outperformance when it comes to the Footsie 100, but not by much.
So we’re going to keep an eye on that, see whether or not the green on the
screen actually hold. In the meantime, a couple of individual
stories we want to bring to your attention, starting off in Spain, where
the Spanish government has decided to conduct its own review of Bbva’s
takeover bid for rival Sabadell. It marks the latest chapter in the
ongoing saga to unite two of the country’s largest banks.
Bloomberg’s Macarena Munoz joins us from Madrid with some of the details.
Macarena, walk us through what the government can actually do from here.
Hi. So, yeah.
So the antitrust watchdog approved PB oh four last month with some conditions.
And now the government who says that it wants to carry on its sole review,
claiming returns of general interest, that would mean it will now have 30 days
to study the proposal and could impose tougher conditions and even stop a legal
merger. Okay.
In terms of how this is going to impact the deal could derail the deal.
Could BBVA decide to walk away? What is the kind of the next thing that
happens here? Yes.
So indeed, if the rationale of the merger changes due to the tougher
conditions, BBVA could could decide to walk away.
But so far, the bank says that the demerger makes sense and that it sticks
to the proposal. Okay.
Thank you very much. Thanks.
Macarena Munoz in Madrid talking to us about the latest in that big battle
within the Spanish banking sector. Another theme that this morning has been
CEO changes that have a quick look at Rémy Cointreau and how the share price
is responding there. We were just talking earlier on with Joe
Easton about how this is an external hire to Remy, somebody coming in with a
lot of experience in various sectors. He’s been at Unilever, he’s been at
Shiseido, the Japanese skincare company. He’s been across a host of different
sectors. And that stock, though, down by 1.2%
right now. And see, we’re focused on Stellantis
also has a new CEO, the carmaker appointing its Americas head Antonia
Loza, to the role. Bloomberg’s Caroline Koenen has more
from Paris. Carolyn.
It took more than four months for Stellantis to replace Stellantis, who
was ousted in December after ten years at the helm of Stellantis.
And Bloomberg had reported that Antonio Firouzja, the current head of Stellantis
in North America, had been the top contender.
And clearly this is sending a huge message to the US is described as the
ante. TAVARES He started his career at Fiat.
25 years ago, he was a protege of the late former Fiat CEO Sergio Amon Kuni.
And clearly Tavares had huge clashes recently with the United States, with
unions, with car dealers, with politicians about how he’s handling
their brands in the US. You know, they own Jeep, they own RAM, a
Dodge and a Chrysler, of course. And they’ve been accused there of not
reviving fast enough the portfolio of these brands and really losing market
share in the US. So we’ll see if Antonio Fuerza reassures
investors, especially on the US markets. Of course, there is the uncertainty
about Trump’s trade policies because even though Stellantis has a lot of
production lines in the United States, they imported out of car parts from
Canada, from Mexico, and in fact, they recently said that they were
withdrawing, kind of suspending the guidance for the rest of the year due to
the uncertainty about all these tariffs. They even at some point considered
moving some production from China to Europe in order to avoid the potential
US tariffs on China. The North America deliveries of
Stellantis fell 20% in the first quarter and the market cap of synergies has
shrunk about two thirds since the peak in March last year.
So we’ll see if Antonio Filos can reassure investors, especially reviving
the relationships with the US market. Yeah, apologies, Sergio Marchionne.
That’s all you need to know. Carolyn, great stuff.
Thank you very much indeed. Caroline Connan joining us out of Paris.
Let’s stay with the auto sector. Bloomberg has learned that the troubled
Japanese automaker Nissan is seeking to raise more than $7 billion from debt and
asset sales to keep operations on track amid huge loan repayments that are going
to hit next year. Let’s bring in Bloomberg Stanley Lee, on
how they are going to achieve this. What do we know about how this is going
to work, this financial engineering? Yeah.
Guy This is going to come from a mixture of of debt and asset sales, and it
speaks to the real urgency that new CEO Ivan Espinosa is looking to raise money
and sell down on assets because of this huge debt war that is coming next year.
And given he’s been recently installed, he’s been taking a close look at the
books and just to see how healthy or unhealthy that financial situation is.
Right. And so in terms of some of the numbers,
Nissan is trying to raise 680 billion from from convertible securities and
bonds, including from the high yielding US dollar and euro notes and also
looking to sell and leaseback the headquarters particularly and also to
pare down some of its stakes in such as Renault as well.
So there’s a lot it’s trying to think about in terms of trying to stabilize
that financial and ship in order to try and look ahead and trying to ensure that
it does. Five in the short to medium term.
All right. Bloomberg, Danny Lee walking us through
the Nissan story. We thank you so much for that crucial
context. Danny was speaking.
We did get some headlines in the banking sector, this time coming out of
UniCredit, talking about, again, yet another consolidation story, raising
their stake to 20% in Alfa Bank. This is, of course, the Greek bank.
They’ve had their eye on for quite some time.
They’re also asking for regulatory approval to go holistic, up from 20% to
29.9%. Shares rallying, it seems, off those
headlines. Okay.
So we focus on the banking sector also in retail.
Interesting that Reuters is reporting that she, in the fast fashion brand, is
planning a Hong Kong listing after its proposed IPO.
We talked about this many, many months ago in London had failed to secure the
okay from Chinese regulators. So there’s not so much about U.K.
approval for any IPO in London, but about the Chinese stance.
And of course, in the background to all of this guy, we know that the US is
taking action on the de minimis rules and lots of other G7 finance ministers
have seen as some door opening a way that they can try and tap into to those
kind of flows as well. Absolutely.
And UK retail, European retail has been pushing for this for quite some time.
This has obviously been a huge headwind for retailers here in Europe and
elsewhere around the world. And it looks like we’re going to see
some significant changes. But as you say, this is probably largely
regulated out of the Chinese story. That seems to be where the impetus seems
to be coming from here. Up next, we are going to turn to how
private equity is viewing Europe. We are going to be joined by KKR, EMEA
Co-heads. Joining us around the table next.
Looking forward to this conversation. It is coming up next.
This is playback. Welcome back.
This is the opening trade. We are 30 minutes into today’s session
and we don’t go so far as to say this looks like a better session than maybe
an hour ago. We were expecting I mean, still
marginal, but we’re up by 3/10 of 1% in the German DAX.
The French market, not too bad overall, though, pretty flat across European
equity markets. US futures, they’re pointing just a
little bit lower, Kristie. It seems that Monday’s excitement is a
long time ago that was joined yesterday with excitement about the US consumer.
But today is a new day, a little bit of optimism around America.
It seems like we’ll take we’ll take a reprieve when we get it.
Let’s talk about that theme, though, and how it translates from the public
markets to the private markets. Last week, we had a conversation with
the chair of AQ t Connie Johnson, how the Swedish giant is positioned to
benefit from that tradeoff. Take a listen to what he had to say.
The ones we’re competing with is almost exclusively the U.S.
firms right now, and they are having some headwinds out in the world for
reasons caused by others than themselves.
And the flipside of that is that people are looking more for managers that is
not based in the U.S. and maybe to deploy money with jobs that
is not U.S. based or U.S.
dollar denominated. Connie Johnson, founder and chairman.
They’re, of course, talking there about how that American exceptionalism, trade
or lack thereof is actually helping them operate more in Europe.
I want to expand on that theme and bring in Tara DAVIES and Tia Caprioni Co-heads
of KKR AMEA Operation. Joining us around the table this morning
for a conversation on that topic. Thank you both so much for your time.
Matea, I want to come to you initially and talk about that trade off because we
talk about it so much in the public markets.
The volatility emanating from the states means that the Europe bull case is kind
of a no brainer. To what extent does that showing up in
the private markets? Well, thank you for having us, first of
all, Kristie. Great to be here.
I would say, look, there’s certainly a lot of volatility and uncertainty out
there. And, you know, we’re all affected by it.
But we’re seeing some positive signs in Europe, as Connie Johnson mentioned.
Certainly, the Draghi report highlighted some areas where Europe could do a
better job at regaining competitiveness. And we’ve seen what Germany has done
with significant shift in terms of their fiscal policy.
They’ve announced 500 billion of capital being invested in the next several
years. That’s a significant contribution to
GDP. And so we see a renaissance of Europe at
the higher level with some positive trends that will help our asset class,
our private capital, so we can play a role deploying capital in partnership
with founders, entrepreneurs, governments.
We’ve done a lot of that through our infrastructure and private equity
businesses, and that can clearly help Europe regain competitiveness in a
number of areas. So, Tara, weigh in here, because you, of
course, have a specialty in and for infrastructure as well when it comes to
have a bit of a division of responsibilities.
He mentioned there that massive fiscal spend from Germany.
I imagine you’re in conversations with some of the leaders of Europe.
There is a question of how long that lasts, how quickly that kind of
infrastructure spend can come to fruition.
What is your view on that at a time when not just KKR, but private equity in
general is flocking to the infrastructure deals?
Yeah, so it’s actually quite interesting because if you think about half the
world going to election last year, actually what we’re seeing is political
cycles are actually much shorter than the duration of our capital.
And in in the infrastructure space, you actually have to be very patient.
But I think, you know, the good news about the $500 billion spend in Germany
and governments are actively talking to us more than ever.
And if you think about this cycle relative to the global financial crisis,
in the global financial crisis, debts up with the consumer in this cycle actually
debt sits with governments. And so governments more than ever need
to partner up with private capital to help deliver their infrastructure
solutions. Yes.
All right. So I imagine there’s a lot of open doors
when you’re going through with money to spend.
And governments are finding their you know, their hands are tied and that
they’re looking for Co-investments and other people to play a role.
We were talking earlier to an investor who was talking about the big appetite
that investors have for putting money to work in private markets and talking
about infrastructure. But he was careful to divide it up into
different types and say, you know, maybe some areas of infrastructure that were
just too many people who just think everything’s wonderful, like centers,
for example. And maybe on the other side, he was
saying there focus more on ports, bridges, roads, that sort of thing.
Where are the biggest opportunities in infrastructure?
So I’ve been investing in infrastructure for the past 25 years and the tailwinds
couldn’t be stronger. And two key areas where those tailwinds
are really strong energy security and digitization.
And to your point on digitization, I think, you know, if you look at the the
spend that’s required to 2028 in fiber towers data centers, it’s $3 trillion of
CapEx globally. So that is a multi generation kind of
trend that we can invest behind us as infrastructure investors.
We have been talking a lot about, you know, doors open maybe to two private
equity money. Governments very happy to have
conversations about where that money can be usefully put to work in Europe and
elsewhere, no doubt. But there are other conversations that
happen around private equity. And you guys have been bidding for a lot
of UK assets and other private equity businesses bidding for a lot of UK
assets, and that leads to two to some people saying, you know, what’s wrong
with the UK listed markets? Why can’t they be more resilient in the
face of foreign takeover private equity approaches?
Is that something we should worry about or not?
Well, you know, as I mentioned earlier, having private capital as an enabler of
growth and economic development is a positive trend, by the way.
What we do is not just taking companies private.
We invest a lot in partnership deals. Europe has a lot of family owned
businesses in the relative to other markets like the US.
The breath and the death of family owned businesses in Europe is significant, and
a lot of these entrepreneurs often seek capital to take the company to the next
level, to grow their businesses internationally, to buy other companies,
consolidate fragmented markets. And that’s where we come in providing
that capital and. Rotational capabilities in our global
resources that enable those founders and therefore partners to expand their
companies. This is not just valid in the UK.
Across Europe, we see that trend continuing and we do support the
European Renaissance through our capital in a lot of what we do.
What does Europe need to do to be better at this?
What do we what do we need to do in Europe to get better at attracting money
to invest in our markets, our infrastructure, our markets?
You talk about the Draghi report. Does it go far enough?
When I give you guys look at the barriers that you face right now here.
One of the most significant ones and one of the easiest ones to overcome.
Look, I think investing at the end of the day is about people.
So, you know, and Europe, unlike the US, is very nuanced with lots of different
jurisdiction, lots of different cultures.
So you really do need to be local in the markets you operate to kind of navigate
political landscapes, regulatory landscape.
But the idea is that Europe is meant to make and to provide some degree of of
commonality. That’s the idea of a single market.
That’s the idea of single regulation. That’s what Draghi is talking about.
You talk about the fact that there’s lots of different jurisdictions.
The idea is we want to get rid of some of that.
So, too, how how big an impediment is that, say, versus investing in the
United States currently? So I think in Europe there is a higher
regulatory kind of hurdle when investing, and I think investors are
attuned to that. But, you know, that is the framework in
which we’re navigating on a day to day basis.
I don’t know. Let me tell you how to do that, that,
you know, the driving report points to a highly fragmented market in Europe
across everything pretty much, and talks about consolidation, consolidation at
the corporate level, consolidation by sector, and also getting the European
Union more integrated in taking decisions and actions not as individual
countries, but much more as a as an entity.
So that’s an opportunity for us because a lot of what we do with our capital is
to support businesses, consolidate their sectors, either within countries or
across Europe. And so part of our opportunity set in
Europe is really provide that capital for consolidation, for investment in
digitization, in energy transition, in infrastructure, and a lot of the themes
that we invest. How much faith do you have that things
are going to change? We’ve been doing this now for almost
three decades in Europe to really help businesses consolidate.
We’ve done it more on the initial scale historically and now with a call to
action and some of the responses that the European countries are having, we
feel that could be amplified even further.
There’s going to be much more of an acute effort to consolidate industries
across Europe and leverage private capital to do that as well.
Well, talking about that private leverage, this is the perfect time to
talk about the capital markets. 2025 was supposed to be the year of IPOs
re-emerging. All these take private to finally kind
of get out of this deal glut. And that’s not happening.
And it feels like it’s because of volatility.
But how does that square with maybe some of the other liquidation of assets
you’re seeing from endowments, but from other long duration asset holders?
Are you worried about too much of a deal glut?
So when we step back and we look at our and everybody talks about monetizations
and how IPO markets affect monetizations in private markets, when we look back
and look at our history of monetizations, IPOs have been a very
small part of our monetizations opportunities.
Most of our exits have been to either financial investors and or strategic
investors corporates. And so we don’t necessarily rely on
apples and liquid markets too much as an industry and ask KKR to monetize our
investments. And so there is a hope that capital
markets in Europe will consolidate at some point of the banking union, the
Capital Markets union. What if we roll on that at some point?
At some point, that’s how long we wait for that to happen.
I’m hopeful that with some of the calls to actions that we’ve talked about and
some of the talks and reactions that governments are having, the U-turn in
Germany, there’s going to be a more concrete effort to make some changes at
the European level to drive a more integrated capital markets and or
banking banking market. So what does that doing to valuations
then? If you start to see, let’s say the
capital markets on pause for a second, we had Lynn Martin talk to Bloomberg in
the last 24 hours talking about that. Even for the New York Stock Exchange,
the most liquid capital market in the world.
They’re not even looking at IPOs until the back half of next year, if not
further along in terms of really getting that that fund flow going.
What does that do to valuations when you’re trying to scoop up new deals that
bring valuations down? Because people maybe don’t want to be
holding assets that long, But we are long term investors and we think about
the potential of the business to compound earnings over five, ten years,
15 years plus. And so the valuation question is really
down to a risk returns and how much you can change and improve a business from
an earnings standpoint. Does it change secondarily, though, with
an. My story, for example, are are I private
valuations following a public valuation? So absolutely.
So every every sector has its own earnings momentum around earnings power
and therefore attracts a different valuation.
If you look at our portfolio in Europe in private equity over the last year, it
grew earnings by 18%. And so our concept of valuation is
obviously relative to the ability to continue driving growth in our
portfolio. And over time, we’ve always sold for
similar returns and similar risk returns.
We do not expect valuations to improve over our investment cycle.
And so yes, there is an opportunity to invest in certain assets at the moment
because of the volatility and more attractive prices, but it’s down to that
risk return equation that doesn’t change significantly over over time.
Now it falls to me to ask about one particular investment that you’re trying
to make at the moment in the regulated water sector in the UK.
And I don’t know who’s best positioned to comment on this.
Maybe sorry where you have to go. I mean, we’ve been reporting a lot on
what you’re looking to do with the existing creditors in your in your
attempts to buy this business. And maybe you’re limited in what you can
say about that, but I wonder what your approach is with the regulator, with off
what conversations like with the regulator at this point.
It’s an exceptionally complex situation. You’ve got the environmental agencies,
you’ve got the lenders, you’ve got government, you’ve got all four.
So there’s a broad range of stakeholders there.
I think if I take a step back, you know, KKR is a top three infrastructure
investor. We own eight regulated assets in very
different markets under very different regulation, and we’ve actually
controlled the UK water company before. So, you know, this is a situation we
understand, but ultimately we’re talking about the hypothetical here because the
stakeholders will decide what to do with Thames Water, The stakeholders will
decide. And you think that there’s a role for
KKR, that this type of business can work under a KKR umbrella?
You know, it’s an infrastructure business of a similar nature to what
we’ve actually owned before. How does infrastructure, how does
infrastructure investment change over the next few years?
You’ve got underinvested spaces like Thames Water, which now need heavy
investment. You’ve just had a huge outage in Spain
and Portugal, a massive changes taking place in the way that big infrastructure
grids are managed. You talk about the sort of the how the
stakeholders are going to be involved in this process.
Is it becoming more complicated to navigate some of these spaces at the
moment, given the need for change, the need for investments, new technology
coming in, new priorities with the green agenda being emphasized as well.
You talk about that. You’ve you’ve run these kind of
businesses before. Is running these businesses more
complicated now than it was? I think with complexity in the market,
there definitely comes opportunity. And I talked about kind of, you know,
energy transition and digitisation is themes now.
They are actually interweaving, interwoven now with, you know, energy
being required for datacentre growth, for example.
And so you can see those two themes merging together.
But if you look at kind of grid capacity and what’s required there, they are
actually quite simple investments. Right?
And we just made an investment in the US with American Electric Power.
Interestingly, that’s a $54 billion market cap, but it’s CapEx profile is
also $54 billion. Okay.
And so this is where private capital can help at points in time where they see
large humps of CapEx to, you know, help deliver what what people need globally.
How much Just give me a sense of the scale of what we’re talking about
globally. It just we’re going through huge
transitions at the moment in a number of different spaces, like do do we have
enough? How do governments do it?
How do you do it? Do you have enough kind of how much
capital is there required out there to make these changes?
And is it going to be capital constrained?
Like if we look at digital, it’s $3 trillion in the next three years.
So it is a kind of capital constrained space.
And I think that evolution means that it will take longer than what people
expect. Okay, That’s kind of where I thought we
might be. Tara, I’m going to give you the final
word on this. What do you need to continue to be
bullish on Europe? I’ll start I’ll start with you from the
regulators, from the likes of Emmanuel Macron, Fredric March six that are what
do you need to get really going in Europe?
I think when we think about what makes our business really important, it’s
teams on the ground and people with aspiration wanting to do good things.
What about you? If you had a wish list for the
regulators, for the European leaders, a magic wand, what would you ask for?
Well, I think we’ve got a lot of the ingredients we need to be successful in
Europe. We’ve seen our momentum increasing
significantly. If you think about the volatility of of
of this year, we’ve invested $30 billion globally, a lot of that outside of the
US. We’ve committed since liberation Day $10
billion in Europe specifically. And so we see the momentum being very
strong and we think these are the prerequisites for us to be successful
over the next. Like ten years from from the government.
You’re all set. We are.
We are pretty positive that the governments are doing the right things
to make us successful in Europe. Fair enough.
Co-heads of KKR. Amit Shah DAVIES and Mattia Caproni
joining us around the table to talk about just how the private equity market
is faring in Europe. Yep.
And talking about that data center story, we’re going to focus on it next.
We’re going to be talking about what we’re going to see in Nvidia’s numbers
coming out a little bit late today after the bell in the United States.
What are they going to say about demand data center demand?
We’re going to get the details of that story next.
This is Bloomberg. What makes Wednesday, Wednesday the
28th. Just let’s check.
We are 50 minutes into the equity market session.
Thus far he’s looked like this. We’re a little higher than when we first
started out this morning. First things we’re up by, let’s call it
2/10, 3/10 of a percent. In Europe, US futures have been sort of
gently rolling over. They’re not down by much.
I think there’s a lot to see there in terms of the narrative.
Bull markets a little on offer this morning.
So yields are going higher. Apparently, we’re all supposed to be
paying attention to a Japanese 40 year. Never talked about Japanese 40 before,
but now it’s a story that we should all be focused on.
Absolutely it is. And Guy keeps trying to write off me.
There are still days of this May all this week.
I’ll point that out, guys so he doesn’t get going.
Monday is the first guy know that you can move on we can we in June by then
let’s look at what lies ahead for us when it comes to the events on the
calendar. Opec+ ministers and Opec+ are holding a
virtual meeting today, so that could be interesting.
We’re watching for what decisions that group is going to make in the near term
around production. Will we see a 411,000 barrel increase?
President Zelensky is going to be in Berlin.
We talked earlier on in the program and we’ll get to that in a moment.
We also get FOMC minutes, lest we forget about that.
And we have in video numbers out later on today.
Let’s turn to that topic, shall we? When it comes to equity markets, the
next big catalyst, could it be the numbers out of NVIDIA first quarter
earnings report coming through after the US bell?
So we got to go all the way through a U.S.
which looks flat and negative before we get there.
Now the last of the magnificent seven companies to report really the final
word on whether the stock market had a good quarter or not and what could set
the tone for Wall Street heading into June.
Joining us now, Matt Bloxham, who leads our tech coverage in London for
Bloomberg Intelligence and is on set with us right now.
Matt, talk us through your thoughts. Is Nvidia weathering the storm?
Yeah, I think they are. You know, I think obviously it’s had a
pivotal wobble for a couple of quarters, but demand from the hyperscalers is
robust. They had some supply issues with the
that that the black well chips whose the next generation of chips but a lot of
those have been resolved down. The market’s looking for them to kind of
ramp supply of that and they can’t make enough of them for the US hyperscalers.
So I think generally speaking, people are looking for encouraging signs both
for the quarter that just finished and also for the next quarter which two had
all see. There are worries about the indirect
effects of tariffs on the company, but that’s going to kind of crimp demand a
bit. But I think, you know, there’s enough
structural demand coming for the next year or two that we should be able to
sell through that. Obviously, China is a big focus that
took a five and a half billion dollar write down because of the latest
constraints on the H20 chipset based console in China.
Our estimates are that that could cost them about $15 billion of revenue for
fiscal 26, which is about seven or 8% of total sales.
So it’s not insignificant, but I think that the ramp and Blackwell demand will
counter that. What matters more, the trade war with
China, those export controls or the AI momentum?
I think the momentum for sure. I think most analysts would think that
over time, a bit like we’ve seen with Apple, you
know, China is going to fade in terms of significance because they have their own
China centric agenda. So I think it’s really the kind of ex
China demand that’s more important. And that’s where this all this kind of
story about Middle East demand and sovereign air infrastructure could be
really important from the mere talk of the UAE
buying half a million Nvidia chips a year, which could be 10 to $15 billion
of annual revenue, which is getting kind of up in that kind of seven 8% of sales.
So kind of helpful growth if you know, the hyperscale demand starts to tail
off, you’ve got that second structural tailwind coming through average for the
year. 125 ought to be trading under 35.
Now low 94, we’re above the average. Does that mean the glass is glass half
full? We’re looking for good news rather than
bad news. We’ll find out a little bit later.
Matt, thank you very much indeed. Matt Bloxham joining us from Bloomberg
Intelligence. And do not Miss Bloomberg Technology
special coverage of those video earnings.
We’re going to get live reaction to the figures from the CIA just like it’s
going to be joining us a little bit later on.
We are obviously going to be hearing him speak as well to investors and analysts.
All of this coming up at 11:30 p.m. UK time.
What else we need to know this morning. Let’s talk about what is happening in
Berlin today. Bloomberg has learned that Ukrainian
President Volodymyr Zelensky is set to travel to the German capital for talks
with Friedrich Hertz today. This obviously follows news about the
long range missiles that have come over the last couple of days.
Bloomberg’s Ollie Crook joins us from the German capital.
Ollie, we are hearing growing criticism from
the White House of Moscow’s actions. There is talk of sanctions, but the
question we’re now wondering is, does it turn into military hardware?
How does what happens today in Berlin alter influence?
What is going on with the resupply of Ukraine?
How to put it all together for me? Yeah, well, I think that Zelensky will
come here to try to find out in some sense what kind of ally he has in
Friedrich Maritz, who has been a much more sort of hawkish voice in terms of
supporting Ukraine than his predecessor, Olaf Schulze, Olaf Scholz, who also was
a very strong defender of Ukraine, but was very sort of reticent about sending
long range missiles, giving permission, sending tanks was always a step behind
the Americans basically waiting for Biden to do something and then coming
into the fold. Frederick Mertz has really cast himself
as somebody who’s going to be much more active, much more proactive in terms of
supporting Ukraine with these tourist missiles.
There has been a bit of controversy over that over the last couple of days.
He was sort of making some very ambiguous statements, not clear whether
or not Germany will actually deliver those missiles to the Ukrainians,
whether or not these are missiles, by the way, that were so sort of fraught as
a military issue, because they can strike basically Moscow theoretically
from within Ukraine, which is why Olav Schulz didn’t want to deliver them.
So today what we will find out is what kind of ally Fredric March is going to
be for Zelensky at a moment when, as we know, the U.S.
administration is stepping back ahead of this summer, a potential offensive by
the Russians. We have Russian troops that are massing
more and more on the Ukrainian border. And at the end of the day, there needs
to be an anchor that holds down the foundation of support for Ukraine and
the absence of the United States. Will that be Germany?
And, you know, Frederik Mertz really wants to turn Germany into a military
sort of powerhouse. And that is going to be the conversation
that is being held between Zelensky and Mertz today.
Well, of course, the coverage a little bit later on.
Bloomberg’s Olly Crook joining us in Berlin.
That wraps things up. It does.
We work our way through into what I think is going to be interesting
session. I have a sort of I’m wondering your
spidey senses are tingling. Well, no, I’m just I think there are
interesting things that people can’t quite figure out what’s going on and
that always you have to sit there and you wait.
Yeah. But are we going to see a cat like the
FOMC? Minutes, I think could be worth paying
attention to this. Various things coming up.
Anyway, the polls is next. This is Bloomberg.

Asian investors are rethinking their strategy of investing in US assets, driven by concerns over the US budget deficit, political polarization, and the impact of Trump’s policies on the dollar. The shift away from US assets could lead to a significant unwinding of dollar investments, with potential beneficiaries including emerging markets, Europe, and Japan, and a possible appreciation of Asian currencies. Collectively, the 11 biggest Asian economies have bought $4.7 trillion of US equities and bonds since 1997, taking total investments to $7.5 trillion

Japan’s auction of 40-year government bonds Wednesday met demand that was the weakest since July, as investor appetite fell after volatility surged in global debt markets. The auction’s poor performance may prompt the government to adjust its issuance of super-long bonds, with the Ministry of Finance seeking input from market participants and the central bank considering changes to its debt purchases next month.

The Opening Trade has everything you need to know as markets open across Europe. With analysis you won’t find anywhere else, we break down the biggest stories of the day and speak to top guests who have skin in the game. Hosted by Anna Edwards, Guy Johnson and Kriti Gupta.

Chapters:
00:00:00 – The Opening Trade
00:05:17 – Nvidia Earnings Preview
00:07:38 – Zelenskiy in Berlin
00:11:04 – SoaceX Starship Launch
00:11:30 – Germany to Abolish Citizenship Fast Track
00:11:54 – Harvard Set to Lose Federal Contacts
00:15:57 – Weak Demand of Japan Bonds
00:27:23 – ‘Sell America’ Moment for Asia
00:31:16 – Citadel Posts Record Breaking Revenue
00:39:26 – JGBs Are ‘Relevant’ for All Investors
00:45:41 – Stocks to Watch: Stellantis, Remy, BBVA/Sabadell
01:05:54 – Stellantis Names New CEO
01:08:45 – Nissan Seeks to Raise Billions With UK Gov
01:10:18 – UniCredit Alpha Bank State Raised to 20%
01:12:46 – US Policy Benefiting Firm: EQT
01:13:37 – KKR Private Equity on Invesment Outlook
01:24:00 – Thames Water Crisis
01:31:14 – Nvidia Earnings Swings
01:33:40 – Zelenskiy Meets Friedrich Merz
——–
More on Bloomberg Television and Markets

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