BHP Targets Rival Anglo American, Meta Earnings Spook Investors | Bloomberg Markets Today 04/25/2024
Give boning from London.
This is Bloomberg Markets.
Today I’m on alongside Guy Johnson and
Chrissie Gibson with the cash tray just
less than an hour away.
Here’s what you need to know.
Stocks in Asia followed Wall Street
lower with big tech taking a hit as
matters earnings report spooks
investors.
Mining giant BHP approaches rival Anglo
American with a takeover offer in a move
that could spark the biggest shakeup in
the industry in a decade.
Plus, European earnings ramp up, with
Deutsche Bank reporting fixed income
trading revenue ahead of estimates.
We will speak to top executives from
Barclays, BNP Paribas and AstraZeneca
this hour.
In the meantime, quick check on these
markets here.
When you look at the futures picture, it
is a negative tone, but you are seeing
massive underperformance over in the
states.
Your stoxx 50 futures down 2/10 of 1%.
Again, the tech underperformance not
seeping through yet.
You’re seeing it more than nasdaq 100
down 1.4%.
However, positivity in euro dollar 107
12 is what you’re seeing there.
And of course we are on currency
intervention.
Watch dollar yen one 5568 marcus today
starts right now.
Thursday, the 25th of April.
Good morning, everybody.
Buckle up.
It is a busy morning for corporate
earnings.
We’ve already had a slew net net.
I would say you’ve probably got more big
misses this morning than big beats, but
the game is still being played.
Barclays is out over the last couple of
minutes.
You got IMAX numbers as well, hitting
the screens as well.
That looks like we can maybe add it to
the beat side of the equation.
Yeah, absolutely.
Omar, as first quarter sales, then up by
17%, the estimate was up by 14%.
And we spent a lot of time so far this
earnings season talking about how much
you could read across from Gucci in
China to other parts of the luxury
space.
Well, maybe there are limitations to
that argument.
Absolutely.
The idea that the US consumer may be
kind of be able to make up the gap.
It’s the exact flip story at Hermes.
You’re seeing the Americas revenue
coming in a little bit lighter than the
estimate.
The outperformance is actually Asia.
So Ana, to your point, the exact
opposite of what we’re seeing carrying,
as I mentioned, lots of earnings stories
coming out this morning, AstraZeneca,
Unilever, plenty from the banking
sector.
We’ve already had numbers out from BNP
Paribas and from Deutsche Bank.
Let’s focus now on numbers out of
Barclays.
The first quarter investment banking
revenue coming in at 3.3, £3 billion.
That is broadly similar to the estimate
of 3.35 billion.
The net interest income entirely in line
with the estimates.
Let’s dive into a bit more detail,
though.
I’m very pleased to say that.
Joining us now is Ben Carter Krishnan,
the CEO of Barclays.
Venkat, a real pleasure to have you with
us today.
Thank you so much for joining us.
We want to talk about net interest
margin, want to talk about the
investment banking part of the business.
I’ll go to the net interest margin story
first, if I could entirely in line with
estimates.
That number this morning, yesterday, we
saw Lloyds reporting something a little
different under a bit of pressure as
consumers shop around for higher rates
of interest on savings products.
How should we look at net interest
margin with all the volatility around
rate expectations?
What’s your sensitivity to the rate
environment there?
Yeah,
well, Anna, thank you very much for
having me.
And as you say, these results are
entirely in line with our expectations
and with what we put out on our Investor
Day about ten weeks ago.
At that point, we said that we had a
target for 2026 returns of 12%, 10% and
24.
Our first quarter growth is 12.3%, which
is entirely in line.
Our income numbers are in line, our
costs are in line and our capitalisation
is in the middle of our range at 13.5%
on C 81.
As far as net interest income goes, you
know, the rates markets have been
volatile.
There’s been a round trip approximately
of 90 basis points, down 90 basis points
back up in the ten year gilt in the UK
and roughly the same numbers in the US.
And so it is very early.
Our numbers are in line with what we
said.
We’ve seen deposit growth, we’ve seen
lending growth in mortgages and in
credit and so we’re pleased with that.
But it’s one quarter in a longer journey
of three years.
Yes, it is.
I mean, some of the talk at the margin
has been a little bit more on the
hawkish side, the higher for longer
arguments producing that 90 basis points
roundtrip to the upside at most most
recently when that as you mentioned.
So so where does that leave us then as
we go through the rest of the year and
we look at what happens to rates?
What does that do to net interest
margin?
Give us a sense of the sensitivity.
Well, I think net interest margin,
obviously, as when you have higher
rates, you have a better lending
difference.
You pay more in deposits, but you get
more in lending.
And there’s a firmness in the markets.
But, you know, rates are very, very
volatile.
So I would shy away from predicting a
number in just the first quarter of the
year.
Venkat.
Good morning.
It’s Guy.
As you say, the rates market is very
volatile, yet Q1 FICC revenue looks a
little light.
Why is that and why are we seeing big
differences beginning to emerge between
banks in terms of the way they’re
performing in that space?
Yeah.
So I think, first of all, within the
Barclays investment banking revenue
complex, as in any quarter, you will
have some ups and downs.
When we look at our own FICC business,
one part of it, which is one of our
strategic areas securitized products,
has done very well on the rate side in
Europe is a little weaker.
And then on equities, and we were
talking from our equities floor here at
Barclays, we’ve done extremely well.
So on FICC, I think it’s a bit of the
complexion of the business and it’s a
bit about where the movement has been.
But I think it’s hard to read into any
one bank in any one quarter.
You’ve got to see the trend over a
longer time.
Okay.
Do you think do you think the US fake
environment is more conducive to
profitability than the European fake
environment?
It’s interesting.
We’re going to be talking to BNP Paribas
in just a moment, and I’m kind of
interested in the compare and contrast
between the way that European banks are
performing in that space and U.S.
banks are performing in that space.
Yeah.
I think, you know, for instance,
Berkeley, we have a fairly big U.S.
presence, as you know.
I think what you’ve seen in the US
market is more active positioning.
The market is, of course, broader across
the full range of credit and the food
and includes securitized products.
So I think there’s a greater and richer
opportunity in the product set in the
US, which lends itself to greater
performance by those with bigger US
exposures.
It’s Kriti in London.
Thank you again for joining us this
morning.
To offset, though, some of that kind of
depression that you’re seeing in the
FICC area.
Talk to us a little bit how you’re
viewing kind of the capital markets, the
deal flow as well.
Is there enough momentum there or early
signs of momentum there to offset some
of the pain perhaps in the bond
business?
Yeah.
So I think deal flow and the equity
markets themselves have been starting to
show some buoyancy.
As I said, we on our equity floor here
and then our own numbers in equities
have shown an uptick for this quarter
versus the same quarter last year.
I think deal flow is increasing, you
know, in our own energy business or our
sustainability business and the
transition business.
We’ve seen nine deals in the last
quarter and a bit.
And so I do think that there is a deal
flow happening.
I think, though it’s very early, you’ve
got to give it a quarter or two to
cement.
Is Barclays prepared to capitalize on
that when it does ultimately come to
fruition, when it does actually see a
little bit more momentum?
Is Barclays positioned to capitalize on
that, given a little bit of an exodus in
terms of your bankers as well as lower
advisory fees relative to your American
peers?
How do you tackle that?
Yeah, well, it has been and it is a
very, very important area of focus for
us.
It’s we want to increase what we do in
M&A.
We want to do increase what we do in
equities.
We have hired a lot of very talented
bankers.
We are focused on the energy transition.
We are focused across the important
sectors of technology and healthcare.
And so we absolutely are positioned to
capitalize on it.
And you should see the results over the
coming quarters.
It’s not something that’s one in days,
weeks and months, but over a longer
period of time.
And we’ve put the sustained investment
and skills behind it and we will
continue to do so.
Can I ask you about M&A within the UK
market?
We’ve got a bit of M&A taking place.
Barclays, you yourselves in the process
of acquiring Tesco’s retail bank
offering, we also have consolidation
with nationwide buying virgin money, the
building society space.
We see consolidation there as well.
Is this a sector where we’ll see more
and are you going to play more of a role
in that?
Well, I think at any time you have an
inflection in the interest rate cycle,
as we have had with changing capital
models and changing consumer regulation,
it stresses business models and it
therefore drives some amount of M&A.
I think our own acquisition of Tesco
Bank is something that’s a win win for
Tesco and for us.
We were looking to grow our unsecured
lending and I think you will see other
institutions look at that.
We have been very, very clear.
Our plan for growth is predicated on as
an organic one.
Obviously in our areas of focus, which
are largely UK centred, our UK consumer
bank, which has had strong earnings this
quarter.
Our UK corporate banking, our private
banking and wealth, if we see some
attractive opportunities which are
tractable and reasonably integrated, we
will look at them.
But that’s not the focus and thrust of
our plan.
Hmm.
I’m talking about the UK then.
Cap, what are you seeing in terms of
credit impairments in the UK?
Any areas of concern or any areas that
are performing stronger than you would
have anticipated?
But I think the UK continues to show
strength in the economy.
You know, there are minor tick ups in
unemployment and so on, but in the broad
scheme of things, growth is strong,
employment is strong.
Productivity has to grow.
But that’s a great focus of both of both
sides of the House in the UK.
Our our credit stats are very, very
strong.
We continue in the UK to outperform
estimates quarter after quarter in a
row, and so we feel very strong.
We feel good about the strength of the
UK consumer and UK credit and that’s
part of our growth strategy.
UK lending.
Venkat Just picking up on that, then.
Hey, do you think this is a is a country
that needs rate cuts right now?
Is that your sense?
You sound quite positive, if I’m being
honest about what you’re saying in the
U.K.,
use the word strength a lot.
So do we need rate cuts?
And the second thing is, it is likely we
are going to see a change of government.
What do you think the change of
government implications are for
Barclays?
And do you think you are looking at a
higher tax regime going forward post
that election?
Yeah.
So first of all, I think one of the most
attractive things about the UK in this
year in which there are elections all
around the world is that there is
relatively little difference in economic
policy between Labour and Conservative.
So as far as industry goes, as far as
the financial sector goes, indeed as far
as the economy goes, I think that’s a
great source of strength because
political change I think is unlikely to
introduce a volatility, certainly
nowhere compared to what it was ten, 20,
30 years ago in the UK and differences
between the two parties.
So I think that’s a great strength of
the UK, the commitment of both sides to
growth, to productivity and to business.
And so I do feel strongly about the UK
and I feel strongly about the momentum
of the country.
Do you think?
Okay.
We’ll come on to the rights question
just to say, do you think, though, that
the there is a greater likelihood that
the financial sector in particular,
which has had a raised tax burden of
late, even under the current
administration, will see that penalty
going higher?
And do you think if we do see increased
taxation in the UK, that that will be
compensated for by lower rates
potentially on on the monetary side?
I’m kind of wanting what the balance
looks like.
Yeah.
So.
Well, it’s hard to say what the balance
looks like because the rate policy comes
from one side, which is the Bank of
England.
And the fiscal policy comes from
Treasury.
So
I think as far as fiscal policy goes in
the UK, growth is the most important
thing.
That is the way that we can fund the
future of the economy.
And as far as taxation goes, look, I
think the government and the government
today and the Labour Party both
understand the importance of growth and
the importance of balanced taxation.
So I’m again quite hopeful and the
country.
Venkat Let’s let’s build on that a
little bit.
When people talk about how they approach
the UK, there seems to be a lot of
questions about why the IPO market,
specifically in London, isn’t catching
up to some of the strength that at least
you’re talking about.
Is there some sort of rebound in the
London IPO market in the near future?
And if if not, what does it need to get
there?
Yeah, I think that’s a very, very good
question.
I think the equity market in the UK, an
equity risk culture needs a shot in the
arm, to be frank.
I think that it’s important for
companies to list in the UK, especially
for life sciences technology companies,
and it needs many things which are
slowly coming together.
There’s a part of it which is
regulation.
There’s a part of it which is equity
investment and people buying more
stocks, pension funds buying more
stocks.
And we think that some of the
initiatives, for instance, the public
flotation of the government share of
NatWest should be important aspects of
that.
And then the entire ecosystem of the UK
and innovation in the UK coming to
fruition in the IPO market is really
important.
And Barclays is trying to play a
critical and positive role in that.
It will take time.
It will take time to undo what has been
happening over 20 to 30 years.
Thank you.
Thank you very much.
Thank you for your time.
We appreciate it.
She has been kind of question out the
CEO of Barclays.
Coming up, plenty more earnings
conversations to come as AstraZeneca
reports.
A beat on core EPS.
Don’t miss our interview with the CFO of
the pharma giant.
That’s at 7:30 a.m.
UK time.
Plus, mining giant BHP approaches rival
Anglo American with a takeover offer.
It is all about copper, a move that
could spark the biggest shake up in the
industry in over a decade could benefit
investment bankers, as we just been
talking about in terms of deal flow.
We’ll bring you that Bloomberg scoop,
the confirmation of that pulling back a
little bit later on in the program.
But up next, we’ll be back to the bank
earnings stories.
BNP Paribas fixed income traders trail
the large Wall Street banks in the first
quarter.
We’ve got some insight into that from
Vancamp.
We’ll speak to the CFO of France’s
biggest bank.
That conversation coming up very
shortly, please.
You get in touch.
There’s a lot to talk about this
morning.
I’ve got to go.
Is the functions use on the Bloomberg
domino.
This is Bloomberg.
The recovery in the wallet in corporate
finance will continue across the year.
Q1 was obviously very strong in debt
products, so investment grade and a
recovery in non-investment grade.
We do expect that to continue and
hopefully see see a further recovery in
M&A and equity activity.
James on Mulkey there, the Deutsche Bank
CFO, speaking to our very own Oliver
Crook over in Frankfurt.
We want to stick with the bank earnings
story and go over to another major
European bank.
Fixed income traders over a BNP Paribas
trailed all of the large Wall Street
lenders in the first quarter, taking the
shine a little bit of a strong
performance in other parts of the
investment bank.
We’re joined now this morning by the
CFO, Lars McNeill.
Thank you so much for joining us this
morning.
We’ll start off with that fixed income
revenue numbers.
It looks like you’re coming in, seeing a
little bit of weakness.
You saw it in Barclays.
You’ve seen in some of the other banks,
Deutsche Bank, the notable exception.
Walk us through how you’re thinking
about FICC revenue given the exposure to
Europe.
I can appreciate that puts be a little
bit of a disadvantage given the lower
volatility story there.
How do you recover?
Yeah, listen, it’s not recovering.
Basically the bank is doing fine.
If you look at CIB as a whole, let’s not
forget we’re basically a flowback.
Yeah, we are accompanying the flows.
And if you look at the parts of CIB, if
you look at global banking record levels
of 6%, if you look at security services
up 7%, look at equities, equities, prime
services up 11%.
And so your question is what’s what’s on
FICC and on?
Basically, we have a very high base a
year ago.
I remind you that a year ago, given all
the uncertainty, there was there was a
very high demand in Europe for FICC, and
particularly if you look at commodities
and currencies, remember in the energy
crisis and BNP Paribas, we are mainly a
European bank, 60%, six 0% of the
revenues of our FICC stems from Europe.
And that is way above what you have in
the overall banking system.
And so we had that high base which has
returned to normal.
This is basically what we see.
So really, if you look at the longer
term, you clearly see that we are up on
market shares and that is basically the
base we will go forward.
So our activity with the clients is very
solid and we will continue to ramp up
our market shares in all of the domains,
including FICC.
Certainly an argument that I’m sure your
peers over Deutsche Bank are watching
very closely as well.
Talking about ramping up, though.
I’m curious about the ramp up in capital
market activity in particular that deal
flow that we’re talking about.
There’s early signs that perhaps you are
going to see a little bit more deal flow
coming up in the next couple of
quarters.
We just talked to the CEO over at
Barclays about that as well.
Where does BNP fall in that?
Does this actually is that a bet just on
volume or is that a bet on advisory
fees?
Where do you stand?
Listen, if you look at our first
quarter, so our capital markets activity
is basically lodged in a department we
call global banking.
And if you look at global banking, as I
said, a record level up 6% compared to a
year ago.
And capital markets is mainly a driver
for that.
So, again, if you compare against a year
ago, you needed the magnifying glasses
to see those activities.
What you clearly see is now there is a
pickup.
And if you look at the Eurozone with
what is ahead of us, what we anticipate,
how we see inflation evolving, what we
anticipate on on that from the ECB.
You clearly see that there is a positive
trend on this.
Love.
Good morning it’s guy.
That’s talk about the ECB.
The rates market is all over the place.
We’ve we’ve expected rate cuts.
A lot of those have now been priced out.
How much visibility do you have on net
interest income going forward?
What do you think the margin is going to
look like?
How easy is it to make a prediction on
what those kinds of figures are going to
be looking like?
That is basically guy, if you look at
it, there’s two things.
So the first question is what is the ECB
going to do?
And so my read whatever, I don’t have a
crystal ball, right?
But my read is that you see in the
eurozone, you see inflation tapering
off.
So I anticipate that the ECB will lower
interest rates.
That will create a positive momentum.
That positive momentum will then trigger
growth, which will it and so on.
So this is a virtuous circle that is
probably going to come.
So that is the first thing that we see.
And as you know, we had BNP Paribas.
We stand to benefit from this
environment.
And then the question is what will be
the overall environment on the pricing?
And so what we see is that several of
the banks we are competing with are
somewhat in dire straits.
And so we anticipate that the overall
pricing will basically hold well.
So we believe that the anticipation of
lowering interest rates in the eurozone
will be a stimulus for a bank like BNP
Paribas.
LA’s investors have been buying European
banks this year and it’s the best
performing sector year to date because
there is this big anticipation that we
are going to be seeing significant
capital returns to investors.
Do you think that.
Do you think that belief is
well-founded?
Do you think the market is going too far
in its expectation given the uncertain
economic environment that we now live
in?
Do you think that capital return story
is actually going to be delivered upon?
Listen, before we we will look at
capital return.
Let’s look at the overall environment.
So does one believe that the banking
system will continue to do well and
basically pick up?
And if you look at that, well, you you
need to take to take a geopolitical
view.
I’ll let you guys decide on that.
But then you have to look at what is the
overall environment, the regulatory
environment.
So if this one is kind of stabilizing,
which is something you see in Europe,
you might have some kind of questions of
where do us is going.
But on Europe, you see some stability on
that.
And so that could you could imagine that
the banking environment should be well
positioned into that.
But then the question is, what is the
overall position going forward for a
bank?
And that’s where things might be
different.
So if you are a bank that is positioned
in zones and with products and with
services that can fuel growth, that will
be the case.
So my message is overall, the
environment should allow that.
But then there should be differences
between the levers that bank have to
continue their kind of profitability.
Last.
Good morning.
You said a little earlier on this year
that this year’s profit would surpass
€11.2 billion.
If there are analysts out there who
can’t make the numbers work.
What do you say on the back of today’s
numbers to convince them that you can
meet those goals?
Listen,
not wanting to say anything bad, but we
thought when we guided that our results
would be higher than that of last year
and that we also said that we would
operate at positive goals and that our
cost of risk would remain below 40.
We would have assumed mathematically
that that basically leads to assumptions
on what the top line will do.
And so what we’ve done is if you look at
the first quarter results, again, if you
look through the exceptionally high base
a year ago, you’ll see that the top line
evolved by 3%.
And so what we’ve now added towards our
guidance is that basically saying that
we are confident that the top line will
evolve by at least 2% over the year.
So that’s basically the kind of elements
we now give and we give guidance on the
top line, on the cost.
On the cost of risk.
And therefore, we clocked in a first
quarter that basically supports that
evolution.
Okay.
So the first quarter supports the
evolution that you’ve previously
described in profit.
Thanks a lot.
Thanks so much for joining as well as
Mary Neal, the BNP Paribas CFO with us
as as he often does make time for us to
talk to us about the earnings stories
and the wider banking landscape.
But we will turn to another sector after
a short break.
Talking about the drug space coming up,
as AstraZeneca reports, a based on core
EPS.
Don’t miss our interview with the pharma
giant’s CFO.
That conversation coming up next.
They’ve got an Investor Day coming up in
in the next month or so.
So a lot of key information and key
assumptions, I suppose, will rest on
what we hear from that Investor Day.
What insights can we get from the CFO
today?
Also, US pricing very much in focus.
A lot to talk about.
We’ll return with that conversation
shortly.
This is going back.
20 folks.
Welcome back.
About half an hour to go until the start
of actually trading here in Europe.
You’ve got a lot to digest.
You’ve got a lot of pieces to put
together to try and figure out exactly
what’s going to be happening here.
The picture is quite mixed at the
moment.
The current, at least at the get go,
looks like it’s going to be potentially
where we’re going to see the weakness.
This morning, though, immense numbers
look quite strong, But my understanding
is they’re going to trade fairly kind of
flattish at the open.
Net net, it feels and this is a very
basic assumption assessment, sorry, of
what we’re seeing here this morning.
There are 40 wall misses out there this
morning than there are beats.
Does that add up to a negative market?
One company that is not on the miss side
of the ledger this morning and is very
much firmly on the beat side of the
ledger this morning is AstraZeneca.
It is out with numbers.
Core EPS comes through at 2.06.
The estimate there, 1.89
key one revenue, 12.6.
They estimate that 11.8 cents.
These are these are fairly decent beats.
And it’s worth kind of asking the
question about kind of how sustainable
some of these numbers are and what
happens next for these businesses.
And I pointed out just a moment ago, I
think it’s on May the 21st, we’ve got a
we’ve got an Investor Day taking place
up in Cambridge.
I think you could join virtually.
But if you want to go up there, I think
it will probably be excellent.
Aaron Hannah Sarin is the CFO of the
company and joins us this morning on
set.
Good morning.
Thanks for coming actually to see us on
a such a on such a busy day.
So we really appreciate that.
These are good numbers.
The market clearly has underestimated
what you are going to deliver this
quarter.
And I’m wondering therefore, kind of is
everything good?
Are there some standouts?
It looks like oncology has been very
strong, two or three really key drugs in
that space of really performed.
Is it consistent across the business are
the areas you need to focus on or is
this a business that is firing on all
cylinders kind of across the piece?
I think the revenue and EPS that you see
is really performance across the board.
So this was the first quarter that both
our biopharma business and our oncology
business exceeded 5 billion in revenue
and our rare disease business was over 2
billion in revenue.
And when you look at the growth rates,
oncology growing at 26%, cardiovascular
medicines, business growing at 23%,
respiratory business growing at 17% and
rare disease at 16%.
So I think one of the key strengths of
AstraZeneca is this diversity of
portfolio.
So it’s not one or two medicines that’s
really driving the growth.
It’s a very broad base of, you know, 12
plus blockbuster medicines that’s
driving the growth.
If you look from a geographic standpoint
as well, it’s again, emerging markets
have been going really strong.
The U.S.
is really strong.
Europe is really strong.
So it’s really across the board that we
see the strength in the performance.
But what’s really exciting, you
mentioned the investor event.
Yep.
Is the portfolio that we have.
So it’s really the pipeline and how that
pipeline is coming to maturity and we’re
continuing to invest in that pipeline.
And I think that’s what’s really
exciting.
Okay, so everything’s doing quite well.
The Investor Day is going to be worth
turning up for August so far.
What you are doing is is also a series
of bolt on acquisitions.
So again, I come back to the business.
I look at kind of where you’re
performing and you’re telling me you’re
performing really well across the board.
If you think about further bolt on
acquisitions, therefore,
are you agnostic as to which area of the
business you would be bolting those bolt
ons to?
Or are there specific areas you think
that actually could do with bulking up
with those Boltons?
So we have done multiple bolt ons, As
you mentioned, over the last 18 months,
we’ve spent about 6.7 billion in capital
and across multiple acquisitions and BD
transactions.
We have defined our core therapeutic
areas as oncology, cardiovascular
medicines, respiratory and rare
diseases.
So those are the core areas within which
we will look to license products or add
products, but process carries on.
I think the I’m not sure it carries on.
I think we’ve been very active in the
last 6 to 8 months, probably 12 months.
But before that, for last two or three
years, we weren’t really active.
So I think it’s maybe the nature of the
market and being able to find certain
opportunities and also how they
strategically fit with our vision.
So for example, we acquired a company
called Grey Cell, which is in the cell
therapy space, and cell therapy is
starting is is a technology that is
starting to come to maturity and
probably will have implications not only
in blood cancers, which is where it’s
now being used, but also solid tumors as
well as autoimmune diseases.
So so I think as technologies mature, we
look at where are things which, you
know, when we can think of the next ten
years and the ten years beyond that,
that where we invest around the.
Good morning.
I want to ask about the margin story at
AstraZeneca, because clearly these
numbers will please the market.
And you’ve talked about the growth rates
that you’re seeing A lot of this growth,
a lot of this pipeline, though, needs
quite a lot of R&D, at least a lot of
spending on it.
And they do seem to be some investors a
bit concerned about how you keep keep
your margins.
And what can you tell us about how you
protect those margins?
What’s what’s front of mind?
Yeah, So when we look at our margins, we
really think about are we getting
operating leverage and the business.
So is our revenue growth higher than our
expense growth?
And that is clearly the case.
So for example, this quarter we saw 19%
growth in revenue and a 13% growth in
ACG.
And obviously you need to invest to
drive that top line.
We also invest about 21, 22% of our
revenue in R&D.
So when you think of the breadth of our
portfolio 120, you know, phase three,
phase two studies, late stage studies,
that requires obviously a lot of
capital.
And so we do invest in R&D and not
everything will work for sure because it
is science, But we’re investing for,
again, the next ten years.
So this growth continues not just this
quarter or next quarter, but for the
very long term.
And of course, pricing will be important
in what you’re able to turn these
products into.
Over in the United States, you had a
lawsuit against the in the Inflation
Reduction Act and drug pricing program,
but that was dismissed.
What’s next for you on U.S.
pricing?
You know, pricing is is clearly an
important factor.
And I think there are many elements when
you think about pricing.
First and foremost, price is.
Very correlated to value.
So when we think of innovative drugs,
you have to bring true innovation to the
market, not just incremental innovation
to the market.
And that real innovation will allow for,
you know, to justify the prices that we
look for.
Secondly, we’re very focused on access.
And the great thing about the Inflation
Reduction Act that is in the US is
actually it provides access to a much
broader set of patients and also that
allows for patients to stay on drug
longer and reduces in some ways the
amount of free drug that we provide
because now you have broader access as a
result of the limitations on Part D, So
so I think we’ll continue to work with,
you know, with governments across the
across the globe.
But both those elements bringing value
through innovation as well as access are
important to us.
Sticking with the US legislation theme
as well, and I love the about the access
point of it.
There’s another piece of legislation
coming through in the House, the Senate,
the Bio Secure Act, which I’m sure
you’re familiar with for global
audience.
It basically means that it kind of puts
prohibit prohibitions on contracts with
companies headquartered in other
jurisdictions, like China, for example,
citing national security.
AstraZeneca has about a 12% exposure to
China, about a 42% exposure to the US.
Do you see a trade off there?
Is there one in the future that may
impede your ability to bring that access
story to China?
Yeah, we do have a large business in
China, a large commercial business in
China, and we also are doing research
and innovation in China relating to the
bio secure act, I think are when we look
at how we supply drugs and our supply
chains are actually very resilient.
And that was proven out during the
pandemic where not only did we supply,
you know, billions of doses for the
pandemic, but we also did not miss a
single dose of our own drugs, whether it
was cancer drugs or heart disease drugs
and so forth.
So we have built very resilient supply
chains and we have a very global
network, both internal as well as with
partners.
So our ability to manage supply from
different manufacturing sites is it
gives us a lot of flexibility.
That being said, we obviously will
comply with whatever regulations there
are, but I think we we have we have very
resilient supply chain and probably will
not have much impact as say so very,
very quickly here.
Just comply.
I mean, limiting the exposure with China
if the US imposes that.
So the bio secure act is more focused on
manufacturing supply itself, where we
already have our own manufacturing in
different places.
But you know, we have a commercial
business and a research business there,
all right around us there.
And we, the CFO of AstraZeneca, we thank
you so much for bringing the headlines
us on the AstraZeneca earnings.
In the meantime, we are getting some
numbers coming out of BHP.
We know that the potential acquisition
offer being made for Anglo here, BHP
group saying that Anglo would receive a
0.7097 BHP shares for each share of
Anglo and that the offer would value the
company at about £31.1 billion.
We’re going to bring you more analysis,
of course, after the break.
In the meantime, stick with us.
This is Bloomberg.
Welcome back to markets today.
We have 17 minutes to go until the
sounds of cash equities trading.
There’s so many earnings stories to
factor in here.
The net result of all of them is that
the stoxx 600 perhaps won’t move
anywhere in a hurry, but we could be
flat.
But some really interesting moves
expected at the stock level.
Let’s go macro though, and think about
all the themes in these markets.
We’re joined now by markets I’ve
executive editor Mark Cutmore to give us
2 minutes on the markets.
And Mark, let’s start with the BOJ.
We’re looking ahead to the big day
tomorrow.
We, of course, have been through 155.
We’re still through 155 on dollar yen.
What’s the game plan?
What are you hearing people saying is
the game plan as you head into tomorrow?
So I think the vast majority of the
macro discretionary market are not short
gen and are looking to for intervention
tomorrow.
And there are a lot of a lot of the
market is buying short term short dated
downside dollar yen puts on this idea
that hey we might get a U.S.
data surprise tonight U.S.
GDP tonight might come in strong.
Atlanta GDP now is reading 2.7% for a
2.5% expectations.
So you might get a hot print there.
Higher yields, higher dollar yen into
DOJ.
BOJ obviously disappoints tomorrow.
And then what we see is the IMF has to
come in on Friday afternoon to intervene
when it will have max power.
And we’ve got precedent for that, of
course, happening before only a couple
of years ago and therefore dollar yen
will come much lower.
But ultimately most of the macro
discretionary market probably wants to
sell yen again, if we do get that
intervention.
For myself, all this narrative makes
sense, except I’m slightly worried we
may not even get the intervention.
I just I think that it’s very, very hard
for the IMF to come in when the US
narrative has not yet turned.
And so I think that’s where there might
be disappointment in that narrative.
Okay.
There could be disappointment there
then.
What about the chances that they don’t
do intervention but they do a rate hike
instead?
Look, I think the if the risk reward is
to bet on a hawkish surprise because
there’s nothing priced.
And, you know, look, our colleague Simon
French has done this excellent analysis
saying, look, they really should be
hiking now by everything kind of the all
the analytical thinking or the economic
thinking.
The problem is, everyone tells me, knows
the DOJ is it’s too political.
Without the communication, without the
guidance, they cannot hike tomorrow.
So it’s likely that, you know, they will
probably disappoint on this.
People are betting on a rate hike.
And really what we’re going to get on
the guidance of whether it’s a hawkish,
dovish surprise will depend on their
forecast.
It’ll depend on their long term
inflation forecasts, what level they
come in at.
Do they show sustainable inflation or do
they show they’re still worried that
they need to provide more easing to this
economy?
Mark, thanks very much.
Bloomberg Markets Live executive editor
Mark Cudmore with the latest on these
markets.
Remember, you can get more from the
team, the whole me live team available
to you.
That’s the function MLA You go on the
Bloomberg terminal let’s talk tech
Mesoblast 50% post-market.
Also the company’s second quarter sales
forecast missed estimates.
The tech giant also announcing plans to
spend billions more than expected on ai
developments.
CEO mark zuckerberg touched on this in
the earnings call.
As we’re scaling CapEx and energy
expenses for A.I., we’ll continue
focusing on operating the rest of our
company efficiently.
But realistically, even with shifting
many of our existing resources to focus
on, AI
will still grow our investment envelope
meaningfully before we make much revenue
from some of these new products.
Robert Lee is a senior analyst for
Bloomberg Intelligence and joins us now.
Robert, the markets took a dim view of
what we heard here.
What do you think was driving that?
What was that?
I’ve seen three things listed as
possibly driving the negativity.
What stood out to you?
Yeah, well, I was going to say what a
difference a quarter makes.
You think last set of results, there was
all the euphoria on the share buybacks,
on dividends and obviously the benefit
they were gaining from the earlier cost
cuts.
But I think, you know, what we heard
last night is perhaps reality bites that
whilst most people agree, you know,
generative AI in general is an
interesting secular trend that’s going
to last many, many years to come.
The reality is the software companies
are a bit caught in the middle at the
moment because they’re spending billions
and even tens of billions out on the
CapEx side at a time when the
monetization efforts are very early
stage in a very immature stage.
So they’re nowhere near covering this,
they’re nowhere near breaking even yet
breaking into profit on their side.
And one key attribute, positive
attribute the Magnificent Seven has,
including better, is its free cash flow
generation.
So again, there are concerns in the
market that the very heavy and
increasing CapEx burden is beginning to
eat into their free cash flow again at a
time when they’re not really properly
monetizing it at the moment.
So the year of savings feels like it’s
over.
So that’s in the rear view mirror when
we remember what is happening right now.
Do you think we’ll look back on this
moment as peaky?
Wow.
Yes.
Set myself up for a full year.
I think we are.
You know, we’re potentially at that
point.
This is going on in the blooper videos
in years to come.
But, yeah, I mean, the tech sector is
notorious for hype cycle, isn’t it?
We’ve you know, we’ve we’ve had all the
hype around Bitcoin and the initial wave
of euphoria on that.
And we’ve met a metaverse.
You know, it’s I kind of follow a
similar cycle.
I think, you know, it comes down to
human behavior, human psychology and the
way that markets work, this sort of
trade straight ahead, priced things in
ahead.
But I think, again, the reality is it’s
going to be a bit of a struggle for all
the companies, not just matter to
properly monetize this.
It’s a multi quarter multi-decade oh,
sorry, multi year challenge for them.
So, you know, yes, I would agree.
Arguably the market has got better had
given the multiples these stocks have
been trading on recently.
Well, Robert, it just feels like even
though every company is investing in a
really big way, Metta has done this and
thrown their weight behind so many
different projects with very little
return.
But compared to, say, like the Alphabet
and Microsoft, where they have actually
been able to gain a little bit more of
that market share.
Walk us through the numbers that matter
when those two companies report later
today.
Yeah.
Key difference with Alphabet or Google
and Microsoft is they’ve got sizeable
cloud computing businesses which are
both large in scale and highly cash
generative.
So you’ve got this cash cow business.
Well, I call it cash cow, the growth
businesses as well underpinning their
earnings and matter really doesn’t have
that.
So that is one key difference between
them.
I would say in terms of Internet stocks,
not just in the US, but globally, there
are three things that matter.
One is the AI monetization and we’ve
just talked about that.
The second, though is the reality is
advertising, which is a very cynical
business again underpins their earnings.
So in a slowing economic environment, we
need to watch that closely and we’ll see
what Alphabet says tonight.
And then I think the third area to focus
on is really shareholder returns.
So again, back in last quarter, we saw
share buybacks or enhanced share
buybacks announced.
There were some questions as to whether
Google could announce a new dividend
tonight.
So we’ll have to wait and see.
So I think enhanced shareholder returns,
again, is is an area the market will
definitely be focused on.
All right.
Shareholder returns, cloud market share,
and of course, our business investment.
Robert Lee, senior analyst for Bloomberg
Intelligence, we thank you so much for
walking us through that.
I should mention those results, by the
way, pressuring Nasdaq 100 futures this
morning, really taking a beating.
Let’s stick with the equity picture and
get our stocks to watch.
Joe Easton from our equities team is
standing by Joe.
Morning.
We got potentially huge overnight news
in the UK.
Here’s Anglo American receives a
takeover proposal from BHP over in
Australia.
Now we’re just getting a potential
price.
It could be around £31.1 billion.
Now, the last time we had a deal of a
similar size was when Sky was taken over
by Comcast back in 2018, just telling us
that we don’t get many deals as big as
this in the UK in terms of why they’re
doing it.
It would give BHP a 10% share of the
global copper supply market and also
more growth over in other metals like
nickel and also some iron ore as well.
The thing with the deal is that Anglo is
also the majority holder of De Beers and
a couple of South American units as
well.
South African unit sorry.
And in terms of BHP, one in this deal to
go through, they say they would have to
sell those units in order for them to
complete the deal.
Now, in terms of valuations, which is
why they’ve been attracted to the stock,
we can see UK miners trade a very big
discount to the global mining sector.
We can see trading on around 12 times
price earnings versus 16 for the broader
global market.
That has spurred some worries that a
couple of the big commodities firms
could actually delist in London.
This is adding to those concerns this
morning.
Here’s the chart.
In terms of some other peers, Glencore,
Anglo and Rio’s.
While not having a great one year
period, the thing is, could they extend
shine the light on other firms that
could then become targets or could there
even be rival bids for Anglo?
That’s what some analysts are talking
about today.
But massive news in terms of UK M&A.
Then in terms of the chips, we got a
sales warning.
This one coming from SD micro sales for
the year.
It could be as low as 5 billion.
The market was looking for 16.
It is a big slow down in terms of the
auto chip space according to the
company.
And interestingly, it comes just a day
after SD might create a massive gain
following some reports from SMI, Texas
Instruments over in the US.
And it wasn’t just that stocks again, we
saw gains across the chip space
yesterday.
So this could potentially be -18.
Analysts have buy ratings on SD Micro.
And another point to note, so we’ve also
got a bit of a warning out today from
that B semi over in Amsterdam.
That one is giving us a negative rate as
well, saying some sharp calls lower and
that bears the buy ratings are nice.
You might 18 on that one.
Finally, Nestlé getting a negative
reaction today.
They are seeing some weakness over in
North America, according to analysts.
Analysts over at Jefferies, pointing to
a frozen food decline mix and also
weakness in some of the coffee.
And also the pet care market says a
quote from Jefferies, calling that a
very weak report, citing the consumer
demand, particularly in North America.
It has had a bad one year already and
potentially we could see that continuing
today.
There it is, over one year.
Next slide, down 19% in Switzerland,
potentially that could continue.
Keep an eye on Nestlé this morning.
Joe.
Thanks very much indeed.
Unilever’s probably worth throwing in
here as well, which I think is an
interesting set of numbers, too.
Joe’s bringing up Nestlé Verve,
certainly having a very tough morning
this morning, but the Unilever numbers
are really strong and there’s talk of
kind of them being so strong that
actually could could see a series of
rerating on that stock to the upside,
Very big compared controls within that
space.
Yeah, absolutely.
And another thing Joe points out, I
think really interesting talking about
weakness in the North American consumer.
I saw that in the piano numbers as well,
that organic sales numbers dropping and
dropping more than expected in that
North American market.
It’s a funny guys talking about the
numbers.
The headline for me was Ben Jerry’s said
that the sale would not affect their
business.
And that to me is what I really latched
onto on the consumer sector.
Really dive into more ice cream and of
course all the corporate stories coming
up.
It is the market open, futures pointing
just marginally higher.
Stick with us.
This is Bloomberg.
The 25th, 2 minutes to go until the
start of equity trading here in Europe.
I have got a list of stocks that are
going to move this morning.
As long as my arm, it is going to be a
very busy morning.
Net net, what is it going to produce at
the moment?
Futures kind of pointing us to a
actually fairly flattish open.
But maybe as we start to digest some of
these figures, we’ll get a little bit
more clarity.
There’s also M&A we need to talk about
as well this morning.
Is this the precursor to a big round of
consolidation within the the mining
space as we see potentially BHP and
Anglo getting together now?
A lot of premium in there, though.
Yeah, certainly not a lot of premium.
This feels very 15 years ago, doesn’t
it, these big deals in the mining sector
and after that they didn’t deliver in
some cases didn’t deliver what people
thought they might and then the sector
went through a whole period of we won’t
do that anymore, we’ll return cash to
shareholders.
Well, now the pursuit of copper gives us
something different to talk about.
Well, I think the copper story so
interesting, cause in the short term
it’s a really kind of scary place to be
right now with all the shortages.
We of course, the Anglo American
downgraded their forecasts or production
forecast.
I think this was Monday as well.
On top of that, they’re also downgrading
their DeBeers division as well.
They’re saying that they’re starting to
see shortages in that piece as well.
But in the long term, this kind of
energy transition creates this
underpinning for the copper story.
So is this a short term supply story or
a longer term?
I think this is a management mess up
story.
Oh, okay.
Anglo is not Anglo, to your point.
I’ve had a series of downgrades in terms
of what they’ve been able to deliver
that has pushed the share price lower.
They’re listed in London.
Anglo is now looking very cheap.
And what you say about the copper is
right, but Anglo has got very cheap
relative to the rest of the space.
And I’m just wondering therefore this is
a kind of isolated opportunity.
Yeah, we want to see where this one goes
at the open.
Not a huge amount of premia, as we said,
so we might well probably get some
upside.
But how much will others come in to bid
for this asset?
We’ll see if there’s any other interest
here.
So many others reporting today.
As Guy said, I wonder if these markets
are just little stunned in the face of
so many Cup corporate earnings stories.
Plus, the tech themes of yesterday
coming out the United States, plus the
M&A.
There’s a lot to deal with.
European equity markets then opening the
5100 is up by 2/10 of 1%.
So we see a little bit of a move higher
there.
The DAX is flat so far, so net net so
far, moving nowhere on the Stoxx 600,
but it’s early days.
We’ll wait for some movement.
We haven’t talked about all the stocks
reporting this morning.
It’s just not possible.
I was drawn to the BASF news earlier on
as well because chemicals are no go.
We often talk about how you you want to
keep across that story.
The numbers beating estimates, it seems,
but saying that they can’t confirm turn
turnaround in the chemicals industry
just yet.
You wonder where that sector goes during
this earnings season.
That was a wacker also quite good, but
they have beaten expectations.
But they are still if you take a look at
what the lens, they’re not great
numbers.
So that kind of relative to what we
thought they would be, yes, they look
good.
But actually in the kind of the big
scheme of things, as you say, the
turnaround in maybe that sector has yet
to appear.
Nestle is getting hit pretty hard this
morning.
ASML is down pretty hard as well.
I wonder if that’s a read across from
SDM and BP.
So that’s coming into that space you are
seeing.
That’s the kind of the tech sector
broadly across Europe under pressure.
The real standout story, AstraZeneca.
AstraZeneca is lifting the Footsie 100
this morning.
It is a the biggest points gain on the
Stoxx 600 it’s up by five and a half
nearly 6% this morning.
Unilever hot on its heels.
Barclays as well higher by about 2.2%
this morning.
We had of course had been earlier on the
show.
We are watching BHP and Anglo as well.
Doesn’t look like Anglo is open just
yet, but BHP is under some pressure this
morning.
So of course, one to watch and see if
it’s that class of M&A trade, how Anglo
responds to it, how close you get to
that.
It does seem as if all of these things
are adding up to a better London
outperformance today.
There’s AstraZeneca hitting the drug
sector, there’s Barclays with a bit more
US exposure, helping the trading side
that helps it stand out from the banking
space.
Maybe the Unilever numbers, the M&A in
the mining space, all of these things
coming together in London and we are up
by 6/10 of 1% on the Footsie 100.
Where is the rest of Europe does look a
little flatter
in terms of the luxury sector.
It looks like the the mass numbers have
been well received.
We’ll talk about these in a moment.
That is giving a little bit of a boost
to the likes of LVMH this morning.
It’s interesting to see L’Oreal also
kind of picking up on the back of that.
The other bank I would just mention is
Sabadell.
That’s looks like it’s had a fairly
solid set of numbers.
That stock is up by over 7%.
So it’s a mixed performance is coming
through in the banking space this
morning.
But broadly in aggregate, probably a
little bit more positive there.
So some real differences emerging in
terms of what we’re seeing here.
Chips are definitely down.
Tech is under pressure this morning.
You’ve got some some kind of real
divergence within the consumer space
between Unilever, Nestlé.
Nestlé is down 3.2%.
That’s the biggest drag in Europe.
Unilever up by 3.86.
That’s the second biggest gainer in
terms of points here in you still
waiting for Anglo American to open up,
even though even without that basic
resources is the best performing sector
in in Europe today.
So we’ll see where that one goes.
But it’s mostly the paper companies at
the moment.
Certainly something to watch.
Remember, going back to what I was time
out with the banks because you’re seeing
some real divergence in terms of how
things, for example, Deutsche Bank
versus being.
He, for example, has actually approached
their fixed income business.
We actually asked the CEO of Barclays as
well how the rate volatility is
affecting their bottom line.
Take a listen to what he had to say.
As far as net interest income goes.
You know, the rates markets have been
volatile.
There’s been a round trip APR of 90
basis points, down 90 basis points back
up in the ten year gilt in the U.K.
and roughly the same numbers in the US.
And so it is very early.
Our numbers are in line with what we
said.
We’ve seen deposit growth, we’ve seen
lending growth in mortgages and in
credit.
And so we’re pleased with that.
But it’s one quarter in a longer journey
of three years.
The CEO of Barclays.
They’re talking to us a little bit about
that rate volatility.
Let’s get more on that.
Tom Metcalf, Army of Finance Investing
managing editor, joins us this morning.
The key theme seems to be this rate
story, weakness in FICC results except
for Deutsche Bank.
Is this a one off?
Yeah, I think it’s really interesting as
you look across between Deutsche Bank,
Barclays like Deutsche Bank’s fixed rate
traders did very, very well.
I think up something like 7% as bank.
I was just saying that it was sort of a
bit of a middling quarter, I suppose,
for the rates traders at Barclays.
But for me, the interesting thing is you
look at the Barclays share price up a
couple of percent, as you were saying.
And I think that speaks to what
investors are looking out for for
Barclays, the investment banks,
obviously the big piece of this, but
it’s not the be all and end all.
And they’re probably pretty happy with
what the bank I was saying it looks like
a delivery on those expectations they
set out structurally.
I think
one of the differences between the
European banks that are obvious from
this set of numbers.
Can I can I aggregate them together?
This is a sector that’s done really well
so far this year.
It’s the big outperforming sector so
far.
But but are there where’s the nuance
within this set of numbers from Sabadell
to Barclays to what we’re seeing this
morning from BNP to Deutsche Wet?
Where does the if I’m stock picking
within the sector, what am I looking for
this morning to determine kind of how I
see the differences between the banks?
Well, I think in some ways you just look
at the domestic markets, right, Like,
you know, Barclays versus a Deutsche
Bank.
And ultimately maybe the difference
there is your view on each of those
countries.
But and that’s the fascinating thing is,
you know, within Europe, there is such a
divergence sometimes between the banks,
like, you know, as I say, Deutsche Bank,
Puerto Rican home very Mary, But they’ve
got this particular strategy they’re
trying to execute on house bank.
Kim Yeah, exactly.
So so it’s always the way I guess in
Europe and so so it’s geography rather
than business model that is determining
kind of how how the market sees these
stocks.
I think sometimes because obviously name
is such a big, big part of what
everyone’s thinking about it.
So yeah, and that’s the tricky thing
with an investment bank, you know,
trying to sort of value that as a
shareholder is really hard because, you
know, it’s a bit of a black box.
Why did Deutsche Bank do so well this
quarter compared to Barclays?
You don’t know.
And as a bank, I was saying it is very
difficult on a quarter by quarter basis
to judge an investment bank.
It’s sort of that longer term view.
But obviously when you see the ups and
downs per quarter, it’s easy to get
caught up in that, which is why you have
that pressure on Barclays to be like, we
actually don’t want you to be viewed as
an investment bank heavy institution.
We really want that risk weighted assets
to come down.
He could be pleased then with the amount
of time we spent talking about net
interest margin and we heard him there
referencing the the round trip we’ve
been on in the UK rates and how that
might play out for the business.
It’s interesting to think about, you
know, we heard from Lloyd’s yesterday,
which their story was one of Nim coming
under pressure because customers were
shopping around and looking for better
deals on their savings.
And, you know, the longer we’re in a
higher rates environment, the more that
might happen.
Want to see?
Yeah, exactly.
You know, it comes down on the retail
side, just execution on that retail side
of thing, which is, you know, often
doesn’t get the headlines.
But can you deliver that customer
experience?
Can you sort of stand out from the pack
without necessarily just relying on a
higher interest rate to bring people in?
But yeah, I mean, that is going to be
the big thing in this rate environment
is how much of that margin can the bank
sustain.
And also, you know, who is kind of
getting more of a market share than
others.
Hmm.
Deals Also in Focus this morning,
something we also talked to Van Zandt
about, something the bankers might be
pleased to see with this big mining deal
perhaps going through at home.
Thank you very much.
Thanks for joining us, soul mate.
COMPERE With the latest on the banking
sector and talking of those deals, Anglo
American shares then on the rise this
morning, jumping 11% out of the gate
this morning, reflecting that BHP, that
BHP offer that we’ve seen for the
business jumping to 2460, so perhaps a
little bit of execution risk being
priced in there as they offer.
Around 25, though it seems is a little
softer this morning.
It’s kind of the bottom end of the CAC,
not bottom end of the CAC, but it’s in
terms of points, a third leading loss in
terms of what we’re seeing from the
luxury sectors.
Interesting.
The other names are actually doing
slightly better in terms of what the
company has come out.
Actually, the sales story in China
doesn’t look quite so bad.
It does look as if there maybe has been
a little bit of trading down.
But it’s also talking about the fact
that it’s not finding further price
hikes for the rest of 2020 for sure.
He says something about how maybe the
the market is evolving here.
How should we be reading this?
Well, let’s get a take from our luxury
correspondent, Angelina Rescuer, who
joins us from Paris.
Talk me through what is happening.
The top line numbers, the sales line,
the revenue line looks really strong.
The market’s taking a more cautious
approach.
So so why are we seeing the cautious
approach when we’ve seen such a strong
top line here?
Hi, guy.
Yes, indeed.
I mean, if you look at the all the
geographies, they grew by double digits
in in in all the regions and crucially
in the Asia Pacific, excluding Japan,
they grew by 14%.
However, the CFO in a call with a report
says that he said that traffic was a
little bit softer after the Chinese New
Year.
So that was in March.
But he said that this softer traffic was
compensated by basically higher
average baskets, so the customers would
typically have missed be purchased More
affordable products like silk scarves or
beauty and perfume weren’t so present.
However, they seem to have done really
well with the customers who were buying
more expensive items, you know, leather
goods ready to wear and jewelry.
So so that compensated potentially the
softer,
softer demand in the sort of more entry
level categories there.
Hmm.
And talk to us a bit more about China
then, because we spent a lot of time
over recent weeks talking about the
weakness of Gucci at carrying and their
struggles in China.
What’s the difference in the stories
here?
I mean, China has been a tricky market
so far this year.
And it’s really
we see a divergence of polarization
between the more and the more the more
exclusive brands and the and the less
so.
And that’s what the caring CFO told us
this week.
She says that
the Gucci, the label, unfortunately, is
located in the middle.
So it’s not benefiting from this
polarization in the markets.
And and on the other side, you have a
label like Hamas, which is, you know, at
the top of the luxury pyramid, maybe,
you know, up there with with with Rolex
and they have this supply constrained
model.
So.
So that’s what we’re seeing right now
that those who control their their the
their supply and therefore their pricing
are in the better position than then
perhaps brands like Gucci who are
perceived to be more in the middle.
I want to be in the middle.
Angelina, thank you very much indeed for
joining us on what we’ve seen out of
Mars this morning.
Let’s talk about what we’re seeing in
the core six this morning, some
divergence.
It’s really interesting.
You’ve had a series of numbers out this
morning.
Look at Schneider doing very well as the
markets marks that stock up by over.
Look at Nestlé.
Nestlé is getting hit hard in Vevey this
morning.
ASML is also coming out of weakness.
There’s chip weakness this morning.
More broadly, Novo also showing signs of
weakness.
LVMH turning around a little bit.
So LVMH now a little softer, down by
4/10 of 1%.
Schneider’s Schneider, it’s an
interesting story and the numbers this
morning may be confirming its place in
the kind of the narrative as well.
There are many stocks this morning that
you want to be paying attention to.
I don’t know how Joe Easton’s whittling
it down, but he has done or maybe he’s
just going to take the rest of the show
and kind of talk about all the names.
Joe, what are you up?
So it’s going to be a tough one guy, but
we’re going to start with Anglo American
because that move there, 13%, it’s a
huge move.
The biggest move we’ve got today.
As Anna mentioned earlier, though, it is
trading below the potential offer price.
Now, the other thing to note is as a
good note from buy this morning.
So there would be antitrust concerns
around this given these two copper
giants potentially merging.
Is that bid coming from BHP overnight
that pre-Olympic limpid?
We’ve actually bought up the secondary
listing of BHP in London.
The main listing is on Australia, but we
can see that declining 3.7% at the
moment.
But the big move is Anglo American, up
13%, not seeing a huge read across in
the papers at the moment, but we’re
keeping an eye.
Could there be a rival bid, Could it
then shine the light on some lower
valuations of these UK miners was really
much cheaper than their global peers at
the moment that we’re going to move over
to chips.
It is it’s it is a nasty day over there.
SD Micro coming down 4%.
B sent me down 6% as well and all the
peers moving lower, Infineon, ASML and
SMI as well.
That one down 1%.
SD Micro and B sent me both giving sales
warnings on the same day.
SD Micro mostly related to the auto
space, auto chips, EVs, that kind of
thing.
B Semi is a chip manufacturing firm.
These really coming out of the blue and
weighing on the tech space.
This morning, we’re going to look at a
couple of those consumer health stocks
that we’ve got.
So we got Unilever.
Those ones are rising around 4% at the
moment.
All the focus is on the ice cream, the
merger potential IPO.
Is that will that go?
Will it be London?
Will it be Amsterdam?
But for the moment, the sales looking
pretty strong across the space.
Nestlé, though, the big decline in North
American consumers not buying enough,
but potentially not buying enough.
Nespresso all the other products from
them as well.
And it does look like North America is
the weak one over them.
We’ve got another drinks warning.
This one again is Pernod Ricard warning
on sales.
This is relates mostly to their China
sales in cognac.
However, we have had a number of
warnings out of those recently,
including Diageo, Remy, all of those
peers potentially that Price said only
down $0.01.
But take a look at AstraZeneca up 5%, a
big move for that stock.
The oncology powerhouse here in the UK
continuing to push on showing strength
in their cancer drugs this morning.
And that is a big mover in terms of that
one.
We’ll just flip over and look at the
banks was expecting to see some
volatility in the Spanish ones given up
potentially.
Pedro Sanchez looking to maybe resign
that breaking news last night.
But the other thing is we had strong
numbers out of Banco Sabadell last night
and they are this morning as well.
Some analysts say that potentially the
net interest margins over there are
better than expected at the moment.
Barclays getting a decent gain following
strength in their trading business.
But the weak one is Deutsche Bank, down
two and a half percent.
Analysts are saying the capital and also
the names the net interest margin
potentially not as strong as expected.
Not too much movement in BNP.
A little going for that one in Paris.
Deutsche Bank, those standing out down
2.5% over in Germany following that weak
capital and net interest margins from
the German lender.
All right, Joe Easton from our equities
team, we thank you so much for walking
us through those crucial stories.
Coming up, we continue the market
conversation with LJ, IBM’s chief
investment officer, Sonia Loud.
The conversation next.
This is Bloomberg.
This is a more of a fundamentals play
because you look at the balance sheets,
the profit statements of these
companies, they are attractive
companies.
You know, they should you know, you
probably don’t want to own 30% of them
in your index.
Right.
But owning all of them, I think, is a
good idea.
As Quinn, CIO for Equity Strategies at
Research Affiliates, speaking to this
program just yesterday, talking about
tech names, big tech names and the
extent to which you want exposure to
those.
Let’s get another view.
Sunil joins us, CIO of Legal and General
Investment Management with us on set
this morning.
Sonia, very good morning.
So we’ll get to some of the European
earnings themes, if you like, in a bit.
But in terms of the stateside mood, of
course we had a weakness after I was in
the matter numbers.
I see the Nasdaq futures down by 1.2%
right now.
So it seems as if that’s going to be
something of a theme as we work through
the day.
There were specifics around one
business, but broadly speaking, your
thoughts on the tech earnings story that
we’ve had so far?
I probably would phrase it slightly
differently, not just on tech earnings,
but just taking a step back to make sure
that we are, you know, capturing the
signal versus the noise.
Because on a day like this, you can get
drowned in the headlines.
And we are.
Yes,
that’s where we are.
And so it’s always important to
understand what’s been the run up to the
earnings season, what’s been the
expectation built into the earnings
season?
And it’s very clear for tech stocks in
particular.
Look, on the one year performance, it’s
been a huge run up based obviously on
the wonderful expectation.
How I will change the business
environment will obviously drive tech
earnings.
And don’t get me wrong, the earnings
profile has been strong.
But if you then look at the valuation
level, you see that we’ve probably gone
quite a bit ahead on extrapolating that
this will be a very smooth line going
forward and that there’s no bump in the
road.
And I think we’re just hitting a little
bit of a reality reality check.
This doesn’t take away the excitement
around the potential for going forward,
but it’s probably valuation coming back
to a more realistic pathway forward.
Okay.
So we’re looking for a reality check on
tech over in the United States here in
Europe.
But we’ve got so many things going on
with the earnings stories, as you
mentioned.
So let’s take the take take one one at a
time.
I suppose.
I was looking at numbers out of the
chemical sector.
Big players, they’re saying you can’t
turn the corner, you can’t call that
we’ve turned a corner on the chemicals
in the chemical sector just yet.
What are you looking for from that kind
of sector?
Because it’s often watched as really
crucial to telling us about the broader
industry.
But a lot of the growth out of Europe,
any recovery has been in services, not
manufacturing of late.
So what signal do you get that?
Yes.
And this is where you really want to
have the reality check with it, with the
fundamentals.
Where are we in terms of our expectation
for the economic growth?
You rightly pointed out we’ve had more
positive news from the services sector
rather than manufacturing.
This was reconfirmed with a PMI story in
Europe yesterday.
And so not necessarily surprising that
the news flow out of companies would
match this.
And now for the large global
manufacturing companies and chemicals in
particular, you would look towards China
as well.
And again, looking at fundamentals,
what’s the story there?
And as such, you know, you have to look
really regionally and fundamentally
what’s driving the relevant pieces of
the jigsaw.
Sonia, is it too early to price an
election risk in the US?
We are always very mindful to price in
any election recipes.
At the end of the day you will have
noise, you will have volatility, you
will have loads of emotive headlines.
That’s a given.
But at the end of the day for investors,
what is it really that influences the
trajectory of growth, inflation,
monetary policy?
Because that really gives you that the
trajectory that you really should focus
on.
And I don’t think if you really look
back in history, ignore the noise.
There will be lots on the day and
clearly in the run up.
But what really is influencing is more
the themes we would look at fiscal in
particular because this clearly is an
area that has helped the US economy a
lot over the past year or two.
And the question really is how much
wiggle room is there, How much can the
two parties and hence the president do
after the after the election.
So you see you priced that in.
What does it actually look like?
Is there a specific asset you’re
watching?
Yeah, of course.
You would definitely watch the long end
of the curve, right?
Because if you consider fiscal
sustainability and where we are, where
the fiscal deficit right now is, you
look at some of the expectations, some
of the headlines and we haven’t got all
the details yet, but you will we will
expect that the market will take note.
There’s no term premium whatsoever right
now.
So you have to wonder whether there is a
steepening of the curve in the in the
run up and potentially afterwards simply
because of the dynamics in the fiscal
policy.
The Footsie 100 is trying to catch up
with its peers.
It started.
Does it carry on?
Is it something that is sustainable?
What gets it there?
I would look at the individual companies
rather than the Footsie.
We know that.
Yes, we look at it from a country
backdrop, but at the end of the day, you
knew it as well as I this is this is the
individual companies, their positioning
globally that drives the earnings.
And I think today’s news really, really
well, let’s talk about let’s talk about
today’s news.
Does is it a reflection of what’s
happening at Anglo?
Is it a reflection of cheap valuations
in London?
Is this something that we could see
replicated?
How many companies could leave, how many
companies could be taken over?
If you just look at the stories today,
it’s clearly strength of earnings and a
take of Astra.
Astra looks really strong, but Astra is
is a.
All the company, the strength of their
portfolios, obviously, and what’s
driving this and their customer base is
global.
And as such, you know, this is not
related to the UK fundamentals and
that’s been a story we’ve had for a long
period of time, right?
The attractiveness of a marketplace is
is a you know, is a set of input
factors.
And a company will always look at all
the factors before deciding whether this
is the best location for them to to set
up headquarter and to strive.
And clearly a company like Astra, you
know, with with a global customer base
seems to be striving here.
But that has to be the ambition that you
have the best backdrop to enable
companies to do exactly this.
Yeah.
And that’s one CEO is usually quite
vocal about what he wants to see in
terms of regulatory backdrop and tax and
all the rest.
I mean, M&A, another big theme in London
today within the mining sector, those
long memories will remember we’ve been
through big waves of M&A 15, ten, 15
years ago in the mining sector.
And the lesson from that was investors
said, no, we don’t want to do that
anymore.
We want you to stop doing that.
We want you to throw off cash.
And that we are we are we ready our
investors ready to go back to another
period of M&A in the mining space.
I don’t think those episodes
unnecessarily comparable because the
narrative has changed completely.
Right.
And we know that the rationale for why
we might see the approach today has very
much to do with the way how and how
metals and mining are used.
And electrification is the big one here,
right?
And we know that the demand for copper
in particular is very much linked to the
electrification story.
And I think this is why I’m always
mindful.
Yes, history is a good guide, but the
logic and the narrative is a very
different one and probably will be
looked at differently in that context
because you’re looking at the mining
companies and the assets they own
differently in the context of a very
change demand pattern compared to ten.
So copper is not what it was then in a
way, because if you consider the demand
and we have all studies pointing towards
the incredible demand that will arise
for these metals, it is a different
story.
Can I just just before we wrap this up,
is is Anglo attractive because it’s
listed in London and therefore trades at
a discount?
No, it’s attractive because of its
assets and the potential you have in
using these in a context with massive
demand for.
Okay.
All right.
So no out.
No, it’s okay.
It’s an important question.
CEO of legal and general of US
Management, we thank you so much for
that crucial context.
It’s a really interesting dynamic as we
talk about the deal flow in the mining
space, not just for Anglo American of
BHP, but is this, to your point, a one
off or a sector run story?
Nobody’s going to want copper.
That seems to be the narrative, if
that’s what Sonia’s saying as well.
Yeah, it’s going to be it’s where do you
get it?
You have to dig it out of the ground
that’s hot.
Or are you gonna buy it on the stock
market?
Yeah, it’s easier.
Antofagasta Another stock was trading
higher this morning.
There’s another sort of read across from
this M&A story and there are the macro
themes aren’t that there’s the what’s
going on in Japan as well.
Also in focus coming up plenty of focus
on the weak yen but back 3155 again,
folks, as we look ahead to tomorrow’s
Bank of Japan decision, the expectation
is we don’t get any change in rates from
the Bank of Japan, although some
analysts pointing out that that would be
something that might support the
currency.
They are very concerned about that.
A lot of verbal intervention still.
But will we actually see some some
intervention once again from the central
bank, from the Ministry of Finance?
We’ll get to that Japanese conversation
shortly.
This is back.
Look back 30 minutes into the day here
in Europe, we are facing something of a
signal to noise challenge this morning.
So many corporate results.
How do we digestible to be honest?
Equity markets aren’t going anywhere in
a hurry.
We are down broadly across Europe with
the exception of the Footsie 100, which
seems to be doing a little bit better.
Interestingly enough, the IBEX is
actually positive this morning.
I think that probably got to do with
Sabadell and less maybe to do with what
we’re seeing in terms of the politics.
There are some big names out there that
you want to be watching in terms of the
numbers that we’ve seen, though, so far
this morning.
Broadly, actually, though, you would
probably say the net story is quite
positive.
Some of this is emanate to Anglos up by
10%.
You’ve got AstraZeneca on the back of
its numbers.
We saw the CFO on assets a little bit
earlier on broad brush story that
Unilever’s having a good day.
Barclays is having a good day.
It’s interesting to see what is
happening with the chip space though.
On the right hand side of your screen,
the banks that the banks are doing okay,
the pharma space is doing, it’s more
mixed.
But the chip space, the tech sector
today is where the weak, the center is
coming through on both sides of the
Atlantic.
The Nasdaq is kind of pitch to be quite
a lot lower this morning.
Yeah, absolutely.
So looking is looking to pick up on that
theme stateside later on today.
Nasdaq futures down by one and a quarter
percent.
One of the big macro things we are also
watching closely this week and this time
tomorrow, we’ll have the answers to the
questions we’re about to ask is all
around the BMJ and Japanese response to
weak currency.
Japanese stocks are lower today with the
yen extending losses in the lead up to
tomorrow’s big decision.
They say after the currency weakened
beyond 155 per dollar for the first time
in more than three decades.
It happened yesterday.
It keeps happening this morning, keeps
getting weaker.
I think this is the first time since
1990 we’ve been to these 155 levels.
Let’s get to you Bamba, who joins us
now, head of active investments for
Japan at BlackRock.
So very nice to have have you with us.
Let me ask you you about what you were
expecting then in terms of intervention.
If we deal with that first, how to maybe
have a conversation in isolation about
intervention without thinking about what
the the BOJ does in its in its meeting.
But what are your thoughts on what will
trigger intervention this time around?
Yeah.
Nice to be here.
What will trigger intervention this time
around?
I do.
I do think you take the intervention
question separately from the DOJ.
What the DOJ does is going to be
separate from any one time intervention
that the government may or may not
decide to do.
We don’t have particular insights on on,
you know, whether or not the government
will do intervention.
We think it’s entirely possible, but I
do think it’s important to separate that
from what the BMJ is going to focus on
doing tomorrow and in, you know, their
monetary policy decisions, which is to
support the Japanese economy and to make
sure that
the exit from deflation sustains itself.
So we think that that’s the focus and
not so much the currency
just supporting the Japanese economy.
Does that rely on sorry, supporting the
economy?
Does it rely on supporting the currency?
Is the yen weakness so, so weak that,
you know, maybe we consider a surprise
hike from the BOJ, for example,
tomorrow.
That would be one way to support the
currency.
Yeah.
No, no, absolutely.
I think I think supporting the Japanese
economy is going to entail primarily
maintaining accommodative monetary
policy, monetary policy conditions.
So the BOJ, we know, is on a path
towards normalizing interest rates or
monetary policy.
They have the big meeting back in March
to pull out of a lot of the
extraordinary policies that they put in
place, like negative interest rates and,
you know, yield curve control.
And they’re on a path towards
normalizing things, but they just want
to make sure that they’re doing that in
a gradual fashion and not rush into
things to tighten monetary conditions
too much, to slow down this the momentum
that we’re seeing in the economy.
And I think that that’s their first
priority.
And addressing the situation on the FX
market is at best secondary.
Who’s in control of what is happening
with the yen right now?
Is it the BJP, the Ministry of Finance,
or is it the Federal Reserve in the
United States?
Yeah, that’s a great question.
I think that, you know, the the the end
the effects ultimately is going to be
driven by interest rate differentials.
The government can come in and do
intervention, and that will move the
market.
You know, for a little while.
But that’s not really going to be the
determinant of the facts.
So longer term, as you know, the Bank of
Japan normalizes interest rates and
interest rates go up in Japan.
And, you know, as the Fed hopefully at
some point starts to cut interest rates,
the interest rate differentials start to
normalize.
And without the effects should, you
know, begin to stabilize and turn.
You, which is the most important cross
rate that we should look at for the
Japanese economy.
We always focus on the yen.
But is it dollar yuan?
Is that the key things that we should be
watching here?
And we should think about how the
Chinese are watching what is happening
here, too?
Is it what’s happening with Korea?
How do we think about this?
Globally and regionally?
And the effects of these various kind of
cross rates have in terms of the overall
basket?
Yeah, I think I think Dollar yen is the
right one to look at and to focus on
from a fundamental perspective.
The majority of the the trades that that
happens in Japan is going to be
denominated or teed off of the dollar.
So so fundamentally that is the right
right pair to look at.
And also from a markets perspective, you
know it’s absolutely the dollar yen that
that that gets the attention of markets
and controls sentiment.
So yeah I think I was just look at
dollar yen and that’s that’s the
appropriate one to look at.
You said that for the BOJ, the currency
should be a secondary consideration and
they shouldn’t want to tighten
conditions too much too prematurely.
Slow down the economy.
What are you at in terms of what does
trigger any intervention then?
If we go back to that conversation, you
won’t be level.
They like to say it’s not about the
level, it’s maybe about the speed of
change.
So what do you think would trigger
intervention?
Yeah, it’s the level, it’s the speed of
change.
It’s the build up of speculative
positions.
I think, I think, you know, from a level
and, and
speed of change perspective, you know,
we may already be at.
You know, areas that they justify or
that motivates the government to come in
and intervene.
So I think it’s entirely possible.
And then also I would add that alarms,
you know, feeling of alarm and anxiety
over the effects is starting to mount
gradually within Japan as well, impacts
the cost of living and and so on and so
forth.
So it wouldn’t be a surprise at all to
us if the government chooses to come in
and intervene.
But, you know, again, you know, like, I
don’t think that that’s necessarily what
the Bank of Japan is focused on right
now.
Bank of Japan is focused on,
you know, the economy and the fact that
they implemented some big changes to
monetary policy at last meeting and the
fact that that was taken, you know,
quite well by the markets, there were no
major disruptions or, you know,
liquidity events or evolve ends in the
markets.
So they must be pleased about that.
And they must also be pleased about, you
know, the progress in wage growth and,
you know, momentum within the domestic
economy.
And so I think that’s what they see and
that’s what they’re focused on.
That calls for, you know, gradual
normalization of monetary policy of of,
you know, interest rate hikes, which is
positive.
That’s positive for savers, It’s
positive for the financial economy.
So I think that’s that’s where most of
the focus will be.
And if he were going to intervene, when
would you do it?
We’ve got key data out of the United
States.
So we’ve got, you know, GDP data, PCE
data.
These are all threatened to move dollar
yen, could move them in a direction that
weakens the currency even further.
And of course, we have the BOJ.
What would be the thinking about when
that intervention would take place?
Yeah, I’m not necessarily in the heads
of, you know, the government officials
that may make these decisions.
I think they just obviously want to do
it when it’s, you know, most effective
and they can do it over, you know, a
number of times as well.
It’s not a one and done thing.
Yeah.
I mean, again, I don’t think it needs to
be tied at all around the DOJ event.
So I would I would, you know, sort of
separate the two.
How much political pressure is there for
a stronger currency?
We were talking to
an analyst the other day who was kind of
joking how cheap a beer is in Tokyo
versus a bear in Mayfair here in London.
And that does seem to be the sense that
you see a lot of foreigners turning up
in Japan, spending a lot of money.
And the local community, there’s a
certain amount of resentment around
this.
Is there pressure, domestic pressure, to
have a stronger currency at this point?
How strong do you think that pressure
is?
I’m trying to understand, as you say,
the motivation to generate that
intervention.
Yeah, I don’t necessarily think that
there’s a ton of resentment in the
tourism that that we’re getting.
We think it’s great.
You know, hotel prices have gone up and
restaurant prices have gone up as a
result of tourists.
But but I think, you know, like the
general mood in Japan is quite positive.
It’s quite positive about, you know, the
stock market doing so well, is quite
positive about wage growth being so
strong, It’s quite positive about CapEx
being at all time highs.
And and, you know, just generally the
the exit from from deflation has been a
big positive for sentiment.
So.
So I think that, you know, generally
we’re feeling good about things and we
are feeling hopeful about where things
are headed.
Is there some political pressure about
the around the currency?
Yeah, there may be some.
And I think we would all like, you know,
the government as well as the private
sector would like to see the yen
stabilize and be a little bit stronger.
But I don’t think that that should sort
of take away from all the positives that
are going on in Japan, and that’s more
of the dominant theme in the business
community as well as, you know, the
government, I think.
Yeah.
Great to catch up.
We’re going to wait.
We’re going to watch next 24 hours.
Going to be absolutely fascinating.
Bamber, head of Active investments for
Japan, joining us from BlackRock.
Coming up, going to get back to that big
mining story.
BHP making that unsolicited takeover bid
to rival Anglo American.
We’re going to discuss what could be the
biggest shake up in the mining industry
in over a decade.
It’s a big deal.
Will it happen?
That’s next.
This is Bloomberg.
Welcome back.
This is markets today, 844 in London.
So 44 minutes into a European equity
markets session that sets London apart
to some degree.
The footsie 100 up by half a percent.
A lot of the earnings stories and some
of the M&A news playing in London’s
favour this morning.
Elsewhere, we have some weakness on the
on the DAX, both of those down now the
world’s largest mining company talking
of M&A.
BHP has made a takeover approach for
rival Anglo American.
Anglo American confirmed the proposal
after Bloomberg first reported that the
bid was in the works.
If successful, the takeover would
represent the first mega-deal among the
world’s biggest miners in over a decade.
Let’s get more on this story now.
Bloomberg senior executive editor for
energy and Commodities.
Will Kennedy joins us now.
Will, thanks so much for joining us.
We’ve talked quite a bit about why this
deal is happening and why now.
We spoke to Sonia Loud over at LGM
earlier on and she was saying this isn’t
because it’s London, it’s not because
it’s cheap.
This is because of energy transition and
the copper access.
Is that the driving force here?
I think that’s right.
Everyone would like to get their hands
on more copper.
And BHP is among the companies that
would like to do this if they got this
deal done.
And it’s a complicated deal with many
hurdles, but if they got it done, they
would control about 10% of the global
copper supply and be the biggest,
biggest supplier in that position and a
very well for a world in which the
expectation is the electrification of
everything, all those wires and cables
that we’re going to need, all those
electric cars means that copper demand
is going to keep rising at a time when
supply is likely to remain constrained.
Well, you said it’s complicated, and I
think you’re being polite.
There is a significant South African
problem that is built into this.
Amplats is one part of it.
The unions in South Africa are another
part of it.
The pension funds, another part of it,
the government’s another part of it.
This is a complicated deal.
Is that why the premium is maybe as low
as it is?
Yes.
I mean, I think that people have always
seen that Anglo’s cultural assets are an
attractive target.
But the reason that it’s never happened
is because of the complicated structure
of Anglo and the rather hodgepodge
nature of its assets.
You mentioned South Africa.
That’s the big one.
And it’s important to note that BHP have
made investments
in iron ore, but the condition of this
deal proceeding now the biggest
shareholder is the Public Investment
Corporation of South Africa, a state
investment firm.
They will be very protective of South
Africa’s interests in any deal.
And another complicating factor is that
the bears of the diamond business, which
is probably not only for BHP, but is
also partly controlled by the state of
Botswana.
So there are lots of hurdles.
The final one I would mention is
anti-trust.
Now China has in the past intervened in
mining deals.
They buy half the world’s copper or are
very interested in the map of the global
copper industry and they will probably
think that this would give BHP too much
control.
So there is an angle, but there’s also
an antitrust angle that we need to be
aware of here as well.
Okay.
So a couple of reasons why this could be
complicated.
Well, what about all the patents to
those factors just puts off others?
Would it make more sense for others to
take on this asset, given that BHP often
seems to be conditional on selling lots
of things?
Well, I think the other bidders will
have the same problems with Anglo
American that BHP have.
But there’s no doubt the Anglo American
copper business centered on some world
class assets in Chile would also be of
interest to Rio Tinto and perhaps even
Glencore, where Glencore has its own
deal going on with its bid for some of
its assets.
Now
again that would be difficult, but once
Anglo was in play, I think it is going
to set off a bit of a frenzy within the
industry about how it ultimately shakes
out and what the shape of the industry
is going to be from here.
Thanks.
Well, thanks for the update.
Bloomberg senior executive editor for
energy and Commodities on hand for us at
just the right moment to talk history.
The BHP approach for Anglo American.
So certainly M&A is something we’re
watching today.
A host of earnings stories as well.
Here’s what else we’re watching.
12 p.m.
UK time Ukraine and Turkey have reached
decisions.
1:30 p.m.
London time.
US GDP and first quarter jump at sorry
for the first quarter.
We’ll also get jobless claims.
We have an international auto show
taking place in Beijing.
So keep an eye on the auto sector.
With that in mind, Anthony Blinken is
also in china.
We have BP in caring at GM’s.
Those could show some shareholder
activity.
And later we get earnings from the likes
of Microsoft, Alphabet, Airbus and
Intel.
So quite a big tech representation.
Also the aviation scenes.
We’re going to talk tech in a moment,
But but aviation also on on the list for
today at ANA.
Yeah, I’m going to be an A points to me
kind of basically I said I said earlier
she basically kind of puts I mean guys
playing sports so you go now young I
took the game for you a little bit later
on which should be interesting.
So in the likes of the Boeing numbers
yesterday, obviously we need to see that
it see what we’re going to see from my
boss in the context of that.
But Airbus, I think is interesting.
And as much as it doesn’t have the same
challenges, maybe the Boeing does right
now, but it does have its own challenges
and the supply chain remains really a
key area.
How far can they ramp up?
They’ve got all this demand that they’re
seeing at the moment, but they’re
struggling to ramp up.
They’ve got a Pratt Whitney engine issue
on the 320 platform, which they’ve got
to deal with as well.
So it’s it’s really interesting that
everybody’s struggling at the moment to
meet the demand that is out there at the
moment.
I spoke to Michael O’Leary yesterday.
I he’s he’s capacity constrained right
now.
We’re going to see higher airfares this
summer because there aren’t enough air
and this And so the Boeing travails,
they matter to Boeing customers.
They even matter to non Boeing customers
as well as we’ve discussed with other
airlines around Europe, because, you
know, if the whole industry is then just
affected by a lack of Boeing planes,
then that has a knock on impact on the
availability of others.
I’ve read Airbus Tech then very much in
Focus.
We talked a little about the metal
numbers.
Let’s do that in a bit more detail.
We’ve had tech earnings coming through
from, well, for matter in particular a
host of reasons as to why this stock
really tanked after hours.
Let’s get more then on these tech
earnings with Bloomberg’s Alex Webb.
He’s with us this morning.
And Alex, I’ve seen three reasons cited,
the sales guidance for the second
quarter.
Underwhelming CapEx went higher,
spending on the metaverse going higher.
All of these three added up to a real
selloff in mass.
Do you think that was overdone?
Well, I think it’s pretty clear that if
you say that you’re going to be spending
more money and your revenue is going to
be lower, investors are probably going
to not take that very well.
And yet the stock has really been bid up
quite a bit this year.
It’s made.
Mark Zuckerberg, I think second or third
richest person in the world again, as a
consequence.
But the key thing here is that there is
less appetite for long duration stocks
right now.
And essentially the message here was,
well, this is actually slightly longer
duration than you thought.
We are pushing out some earnings because
we expect to deliver in a few years
time.
In the current higher interest rate
environment, investors are more willing
to go well, in fact, than we don’t
necessarily need you as much as we
thought we did.
So the year of savings, the year of
economy is firmly over.
Is this.
Is this message a struggle with the idea
of saving money and not kind of
splurging money on on the next big shiny
thing?
Is that the take away as well here?
I mean, it’s very hard not to be tempted
as Facebook management when you’ve got
something like $50 billion in free cash
flow to go, well, I’d like to spend some
of that money.
The thing is, the thing will be
fascinating this year is when they had
the prior expansion into reality labs.
They call it the metaverse.
There was an overexpansion that you
really saw average revenue per employee
all significantly.
They corrected that to a large extent
last year.
It’s really tough for all the people
that hired and of course, that they had
essentially over hired.
Now, if they’re expanding into this new
space now, it’ll be a real test of
management to see whether they can do so
efficiently because, you know, sometimes
you do need to add headcount.
The question is getting it right, making
sure you don’t have too much headcount
given what your needs might be.
Hmm.
Tell us what benefit he brings to a
business like matter then, Alex.
I was reading a nice opinion piece
earlier on today by one of our
colleagues, Dave Lee.
He was suggesting that sometimes, you
know, it’s not entirely clear what these
big tech businesses should be best doing
with some of these AI technology.
Yeah.
I mean, there is a very, very broad
church in terms of what the technology
means.
And of course, matter has been using AI
for a very long time and it’s
advertising business and it has been
progressing some of that recently,
adding New age led advertising features.
It also has LAMDA, its large language
model.
Increasingly, some of these companies
are seeing large language models as
gateways, essentially new platforms, new
ways of accessing the Internet so that
you all your future use.
The internet becomes a conversation,
whether with a chat bot of sorts that
then directs you towards the things you
need to go to.
Facebook clearly wants to be part of
that game and that also then provides an
opportunity for licensing, whether you
can license that technology elsewhere.
Now it seems very clear that Facebook is
playing in the first space, it’s playing
in the advertising space.
There is a suspicion that it really
wants to play in that second space.
What happened?
The third one, you know, essentially
remains to be seen, but it’s partly
about ensuring that you are well-placed
to capitalize on any opportunities that
might come.
A microsoft and Alphabet’s, if they
outperform, going to be enough to
compensate for Tesla, a matter.
I think probably, yes.
You know, this is what we saw in the
last earnings cycle was that we had
quite often people tend to think of
these sort of magnificent seven, the
tech stocks, whatever you want to call
them, as sort of a monolith.
They’re not.
They’re all very different companies.
We saw last time around, Facebook did
pretty well.
Google didn’t do very well.
And actually we didn’t see sort of a
catastrophic fall out in the broader
market because that was a mixed picture.
So, you know, Microsoft and Google, they
have far bigger market capitalizations
and those are the two companies.
So you would expect then that if they do
well, they outperform or they meet
expectations, then it should be enough
to assuage any concerns.
With Facebook, the big challenge really
is going to be Apple looking a bit
further ahead given the challenges that
they are facing in China.
Alex, thanks so much.
Maybank’s Alex Webb joining us with the
latest on Masser and the the wider tech
space.
This really stood out to me in this
piece from Bloomberg Opinion Guy.
This was all about, you know, what do
these apps exactly do with A.I.?
And one of our authors saying that when
he was searching for an old message on
WhatsApp, the I asked whether he would
like to take a moment to generate a
humorous illustration of a cat.
He didn’t.
So he got that said.
I mean, if that’s where we are, if
that’s my journey, there’s a long way to
go.
Yes.
That doesn’t feel like it’s
productivity.
In fact, it feels like that’s anti
productivity actually taking us in the
wrong direction.
So let’s we come to the end of the show.
We started the show asking the question,
kind of where’s the signal in the noise
this morning?
We’ve got an awful lot of noise.
Where is the signal this morning?
And I’m still trying to work that one
out for my kind of takeaway this morning
is that actually Footsie 100 stocks are
doing relatively well here.
Yeah, Maybe this catch up story on the
Footsie 100 maybe therefore has a little
bit of momentum this morning.
Astra’s up Unilever’s up angle, Anglos
up on its own kind of story, kind of
whatever it’s doing.
The oil stocks are doing relatively well
as well.
So there’s an interesting kind of
footsie outperformance narrative, which
I think is worth maybe looking at.
There is absolutely up by 4/10 of 1% on
the footsie as the Stoxx 600 is down by
3/10 of a percent and some of those are
UK UK specific a little I mean you could
say that about some of the Barclays
numbers, but there is a global story on
Barclays and there’s certainly a global
story around the other names that you
mentioned.
So that’s a that’s interesting to note.
I think it is apt that we actually ended
on that conversation about techs because
although we’ve been distracted rightly
by all these European earnings, if we
look ahead to the US session, that’s
still ahead of US.
Nasdaq futures down by 1.1%.
And that is the metal story and that is
the concern around this earnings season.
And we’re building up to the Fed.
That’s going to be a big story as well.
The earnings are going to continue.
The noise will certainly be with you
throughout the rest of the day, but
we’re going to cut through it.
Norse Hydro’s CEO is going to be joining
us a little later on.
I’m going to be speaking to the Airbus
CEO.
Looking forward to all of that.
That wraps things up for us.
It’s been a busy morning.
I hope you’ve taken some signal away
from the noise.
Francine is going to carry on the
conversation next.
The pulse is up next.
This is Bloomberg.
Mining giant BHP approaches rival Anglo American with a takeover offer in a move that could spark the biggest shakeup in the industry in a decade. Plus, European earnings ramp up, with Deutsche Bank reporting fixed income trading revenue ahead of estimates. We speak to top executives from Barclays, BNP Paribas and AstraZeneca. 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, Kriti Gupta and Guy Johnson.
——–
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1 Comment
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