'Surprised' If Fed Cuts Before December: BNP CIB | The Pulse with Francine Lacqua 04/30/24

‘Surprised’ If Fed Cuts Before December: BNP CIB | The Pulse with Francine Lacqua 04/30/24

Newsmakers and Market movers.
This is the pulse with friends in like.
Well, good morning, everyone, and
welcome to the Pulse and Francine Lacqua
here in London with the conversations
that matter.
And here’s what’s coming up on today’s
programme.
The HSBC chief executive, Noel Quinn, is
unexpectedly stepping down after nearly
five years in the job.
Well, Europe’s largest bank says they’ll
consider internal and external
candidates.
A difficult start to the year for German
automakers, with earnings tumbling 20%
at VW and more than 30% at Mercedes in
the first quarter.
Plus, French economic growth accelerated
in the first quarter, boosting hopes
that the euro area can emerge from a
mild recession.
We’ll bring you the figures from Germany
in just a moment.
Now, let’s also take a look at the
European markets map and a lot of the
focus will be on cross asset, especially
ahead of the Fed tomorrow.
We’re also trying to wade really our way
through some of the earnings.
I was looking at some figures of
Bloomberg economics is really our go to
place and Bloomberg intelligence is our
go to place to get up to date analysis
on some of the earnings trends.
If you look at VW so profit fell more
than expected.
But actually if you look at early
results from year’s reporting season,
they suggest that more than 80% of
companies in the US are beating
expectations.
Now, the German preliminary first
quarter GDP a little bit better than
expected, and we were expecting a 0.1%
rise.
We have a 0.2% rise.
We had France and we’ll put it all
together.
The Italian also first quarter GDP, a
touch above estimates.
Now, let’s get on to the U.S.
futures because, of course, a lot of the
focus is not only on what the dollar is
moving, but what futures are doing ahead
of that Fed tomorrow, which is expected
to be a little bit more hawkish.
So S&P futures, NASDAQ futures
practically unchanged.
And then we have the Bloomberg dollar
index, 1261.
Now, the HSBC chief executive, Noel
Quinn, is unexpectedly stepping down
after nearly five years in the job,
triggering a search for a replacement at
Europe’s largest bank.
Now, the surprise move came as the bank
reported pre-tax profit that slightly
beat expectations and announced a share
buyback of up to $3 billion.
Now let’s get more with Tom Metcalf,
Bloomberg’s managing editor for EMEA
finance and investing.
This is a big deal, Tom.
I mean, we weren’t expecting it, so
maybe the board was not expecting it
because now they’ve launched a search
for the next chief executive.
What’s been the reaction so far?
Yeah, absolutely.
Surprise.
You know, I never normally sleep well
the night before HSBC results because
you never quite know what’s going to
come.
But I can recall at 5 a.m.
saying Quinn was stepping down, which
was not in the plan at least.
And so, yeah, I think a lot of people
the feeling was, you know, you’ve done a
good job of restructuring the bank.
He was moving it along and there was
really no sense that, you know, after
five years he was going to be keen to
retire.
So, you know.
QUINN now they’re saying, look, I’ve
done what I wanted to do.
I’m now keen to sort of have what he
calls a portfolio career.
So probably a bit less travel than you
might get as HSBC CEO.
But yeah, broadly, analysts are coming
through looking at those search results
pretty strong, but saying, yes, tempered
slightly by the surprise announcement
because obviously it does raise
questions who is going to replace him.
So, Tom, any insight on that?
I mean, again, you know, under Noel
Quinn, HSBC actually changed quite a
lot.
He really focused on Asia.
He kind of pulled out of France and
also, you know, cut back on the other
developed market to us that they were
quite present in.
What kind of a leader does HSBC need now
at a time where, you know, Quinn
positioned it more towards China, but
actually, you know, the US bashing of
China is real.
Yeah, I think it’s really carrying
forward that that strategy.
It seems to be bearing fruit right now
as you look at today’s results and the
share price in recent months.
So I think, you know, in terms of what
HSBC may be looking for more than
anything, is someone with those ties to
Asia, someone who really understands
Hong Kong, the China market.
But, you know, they’re very clearly
looking both internally and externally.
And, you know, as you look around at the
pool of available candidates, there’s
not someone who feels very sort of
difficult remit of experience of running
a big global bank, very good experience
in China.
Those people are very thin on the
ground.
So I think it’s going to be a bit of a
tough process, but it’ll be interesting
what they come up with.
Yeah, And so we know that he’s, of
course, staying on until they find a
replacement again.
How unusual is it for a chief executive
whose legacy is quite good to step down
after five years?
We know he talks about work life
balance.
I mean, this is a lot of travel and a
lot of going around the world.
Yeah.
I mean, it speaks to maybe how intense
the job is, Right.
But no, I think broadly speaking, it’s a
surprise because, you know, CEOs, when
they’re kind of on a roll like this,
tend not to sort of step step away.
And that’s been the main thing is he’s
been in place for about four years and a
bit longer when you include his time as
interim CEO.
But, you know, you get the sense this
was, you know, the sort of job of a
lifetime furniture speak lifetime lifer
like himself.
So, yeah, be interesting to see, you
know, what comes next.
But certainly all the messaging is is
this is certainly a decision he’s made.
And, you know, with him staying on
embedded in his new successor, it seems
like.
It very much was a decision he just came
to and decided he would just leave.
Tom, thank you so much, as always for
your wonderful insight on that cat.
So now we know Tom does not sleep well
before HSBC earnings because there’s a
lot going on.
But no one, frankly, was expecting this
big news today.
Tom is our managing editor for EMEA
finance and investing.
Now let’s return to GDP figures with our
guest, Marcelo Carvalho, BNP Paribas,
global head of economics and Bloomberg’s
Justine and Lisa.
Thank you both for joining us.
A lot of the focus, of course, is on GDP
figures.
A lot of the focus is on some of that
underlying inflation in Europe.
It feels just for the moment.
We had France, we had Italy, we had
Germany a touch better than expected.
So nothing huge that will that will
steer or change the ECB thinking.
Right, exactly.
I mean, we’ve kind of got a pretty solid
set of numbers from those were countries
generally kind of
exceeding expectations.
And at the same time, we do kind of see
inflation data sort of decelerating
across the board.
And so I think in terms of kind of
market reaction, I mean, we’re seeing
pretty strong confidence right now that
we’re going to get a rate cut around
June.
But I think the question after that is,
you know, if you look at the US
experience, it does seem like, you know,
the path back to 2% inflation could be
bumpier than expected.
And to what extent could the ECB diverge
from the Fed?
And I think that sort of the question
here, and that’s why we’re still seeing
a pretty wide range of opinions from ECB
officials.
Yeah, which Marcelo is also, I guess the
problem, if you’re looking at how to put
your money, where to put your money.
A lot of the focus on the Fed and I
don’t know whether it’s really easy to
get out of this gravitational pull from
the Fed.
So almost unless there’s a huge downturn
or big downfall inflation here in
Europe, do you just follow the Fed?
So, listen, I think this has the
conditions to move ahead of the Fed.
We’ll look for the ECB to move in June
already by cutting rates.
They seem to be determined to do it.
What they do afterwards is another
question, but they do cut in June, we
think.
And I would be surprised, however, if
the Fed is able to cut anytime before
December.
So when you compare the two, it’s very
interesting.
People talk about the smile on the
inflation effort in the US to smile is
looking longer.
Keep in mind the US, you talk about
bias.
In Europe, we talk about kilometers and
am I was longer than a kilometer.
So the case for rate cuts by the ECB, I
think is much more compelling than the
case for cuts of for by the Fed.
So how concerned are you about Germany?
We had this wonderful conversation also
with the Ifo president.
I mean, it’s a little bit better than
expected, but actually there’s just not
that consumption that maybe we were
expecting.
And when you look at services are okay,
manufacturing still not there.
Yeah, absolutely.
You see Europe in general services are
actually doing well.
Manufacturing in Germany actually is a
different aspect.
But let’s keep in mind also that Germany
is quite dependent on exports and
therefore on the global demand,
particularly in China.
And the prospects in China are well,
where listen, the first quarter was
better than expected.
People revised up their numbers for the
year, but prospects going forward are a
bit more challenging.
A lot of earnings we almost can’t keep
up.
A lot of the automakers are actually
struggling today.
Is there a common theme?
I know Bloomberg Intelligence did some
work on, you know, very early U.S.
earnings and actually 80% of them seem
to have beaten expectations.
Right, Exactly.
I mean, it’s pretty amazing how strong
these numbers are even at this stage of
the cycle.
And in general, in the US, among large
caps, the earnings growth is still
exceeding expectations.
And I think part of that kind of speaks
to the continued resilience of the
American economy.
A part of that is also about a lot of
these long term themes.
I mean, we kind of saw the effects of
air demand, you know, even on Samsung’s
profits these couple of days.
And I think you’re seeing that a lot of
businesses are kind of investing in
these tools, investing in cloud, kind of
regardless of where they see the economy
right now.
So is it difficult to break down?
I mean, we tried to do it yesterday a
little bit.
Is it a common theme amongst them?
Is it really more regional like Europe
versus the U.S., or is it really sector
by sector?
Yeah, I mean, I think part of it is a
sector story.
I mean, what’s pretty amazing is that if
you look at people always talk about the
Magnificent Seven, but it is true that
kind of despite how much they rallied
ahead of the market, I mean, they have
kind of the earnings to back it up.
And so if you’re an investor who’s just
kind of investing in S&P 500, I mean, a
lot of kind of your profits kind of in
that index are coming from these stocks.
And so I think it really speaks to like
the winner takes all nature of tech,
which is quite different from, I guess,
like a lot of the past trends.
Marcelo, how does that crossover into
your research world?
Do Are we creating good quality
companies in Europe like the U.S.?
I can grow.
Listen, I think for the equity market,
the important thing here is how the club
performs in.
We do see quite convincing signs that
the economy is looking better.
We think the times of stagnation in the
eurozone over the last year or so are
over.
We do see these green shoots clearly
becoming more clear.
We look for a gradual recovery going
forward because we do see real wages
speaking up, which would help
consumption.
We should see also continue signs that
the peak of the impact of previous
monetary.
Is getting behind.
So the prospects therefore look quite
encouraging for our eurozone, so that
we’re also you’re also always trying to
look actually at some, you know,
mismatches when the economy is telling
us one thing, when companies are telling
us something else or even what we’re
seeing with gold and, for example,
Treasuries.
Are you seeing anything worrying in
companies, maybe some trends in
companies that’s not reflected in the
economy or vice versa?
This is what we see as being worrisome
is actually not so much in the eurozone,
but the fact that the EU with us things
are almost too hot
to be too good to be true in the sense
that too much of a strength in the
economy, along with pressures on
inflation, as we have seen lately, and
you should see in DCI today, us as well,
raise questions about the Fed’s ability
to cut rates.
Okay.
And we’ll talk a lot more actually about
the Fed and the strength of the dollar
shortly.
Marcelo Carvalho there from BNP Paribas
in Bloomberg’s Just in Italy stays with
us.
Now, coming up, traders warned that
Japanese officials that the beleaguered
yen will need sustained support.
So more on that next.
And this is Bloomberg.
Then decide.
Jay Powell pumping the brakes on rate
hikes are off the table.
No cuts.
Looking perhaps a little bit more
likely.
You can’t see there’s a whole lot wrong
with the U.S.
economy.
Trust Bloomberg to bring you the fastest
coverage and exclusive analysis,
including Powell, his press conference.
Policy rate is likely at its peak
threshold to cut rates is a little
higher.
Redefining patience Bloomberg
Surveillance.
The Fed decides starting at 1:30 p.m.
Eastern, context changes everything.
Well, a lot of the focuses of currency
traders on dollar strength.
Of course, we had the Fed tomorrow and
markets really positioned for a little
bit more of a hawkish stance from the
Fed.
Let’s return to our discussion with
Marcelo Carvalho, BNP Paribas, global
head of economics and Bloomberg’s Justin
Alle.
So thank you both for sticking around.
Marcelo.
When you look and you were making this
point that there is a worry actually
that the U.S.
economy is overheating and we could see
it maybe in some of the earnings or
certainly some of the companies.
What does that mean for Jay Powell?
I mean, there’s one lonely voice that’s
not so lonely anymore, and that’s Larry
Summers saying that actually everyone’s
focused on the cut.
We could see a hike from the Fed.
So, listen, I think what the Fed will do
this week is, first of all, not change
the policy rate.
Of course, it’s too soon for that.
But more importantly, let’s watch the
statement and even more importantly, the
press conference.
I think what Powell is going to do is to
reinforce the recent communication from
Fed speakers indicating that there is a
numbers on the inflation side do not
give the confidence that the Fed needs
to start cutting.
So it’s on hold for quite a while.
Although, that being said, I do continue
to think that the bar for a rate hike is
very high, so we should not
realistically be talking about a hike.
I mean, never say never.
Most likely is going to be next move
being a cut, but it’s two a bit far
away.
But next year or we think December, I
think December could be already.
There are risks, of course, cuts earlier
than that bump into the problem of the
election.
The Fed probably doesn’t want to be
changing policies too close to the
election.
So it could be December.
But there are risks that it could be
later if the economy continues to be
very hot and inflation is not
comfortable enough for the Fed to move.
Just, you know, we focus, of course, a
lot of time on exactly what’s happening
with dollar, dollar strength.
And I want to ask about emerging.
A lot of these emerging currencies as
well.
But how much higher can go?
Yeah, I think that really is kind of the
big question here.
And I think, you know, if you kind of
look at the yen, I think the question
here is kind of has the yen weakness run
its course?
I mean, it’s not just kind of like
about, you know, the speculation of yen
intervention, but also kind of the
differing paths between kind of those
two countries.
And I think another big question is
China here, Right?
Because there’s been a minority of
people who are wondering, are we going
to get a big devaluation out of China to
support exports?
I think, you know, it’s not definitely
no one’s base case, but I think that is
going to be another big question in the
market.
Marcelo, you used to for many years
actually be in charge of emerging
markets.
I mean, this is an exciting time for
emerging markets, but actually a wobbly
time with also the blessing of Janet
Yellen to possibly intervene in
currencies.
So listen, the U.S.
being so strong as it is as an economy
and the Fed keeping rates high for long,
it is understandable why the dollar’s so
strong now.
Intervention on the currencies at work.
If you have either a multilateral action
or else things going along with
fundamentals, I don’t think either of
those
circumstances are in place right now.
Don’t expect multilateral action like a
plus accord anytime soon from the US
point of view.
It’s my currency, your problem.
And also in terms of fundamentals, if
you think about to bill, for instance,
in Japan, it’s quite clear that as
sooner or later people do have to hike
again.
So intervention without multilateral
action, without the fundamentals, tends
to be quite short lived.
I know the BOJ is actually releasing a
set of data today that can help us
understand the mystery of what you know,
if they’ve intervened by how much.
I mean, does it make that much of a
difference?
Look, he does for the very near term of
the market gyrations.
For the medium term.
However, I think the fundamentals
prevail.
And again, I think the fundamentals are
that inflation pressures are building.
In Japan, they started moving on rate in
terms of the rate policy.
We think there’s more to come.
The other direction of where those seem
to be on the dovish side lately.
So it doesn’t feel like in the rush to
hike we think a hike however is coming
in September and there’s further hikes
down the road.
And again, just you know, this is I
mean, it’s excessive the worry about
excessive currency moves, but it’s
really the pace of the moves instead of
the level.
Yeah.
I think one level that a lot of
strategists are looking at as kind of
the ¥10 move, but of course, it’s kind
of you need to think about like over
what amount of time.
But you’re right in that everyone was
looking at 160 versus the dollar.
But it’s really about the speed.
And I think that’s why the move on
Monday was so remarkable because it was
kind of like pretty rapid.
But I think going forward, even if it
did intervene, I think the question is,
I mean, can you really sustain this
given the differing paths of the rates
and more?
So how do you read China right now?
So again, it could be some help if it’s
exporting deflation, but there are so
many, many unknowns about how much they
can really support this economy, given
real estate troubles.
Yes.
Also, there are two issues here.
Yes, China could be exporting deflation,
which is helpful for the countries that
are fighting for this.
Of course.
However, for most of their countries,
the key concern on inflation right now
is not so much external, but domestic
services.
Price inflation in particular, have
proven to be quite sticky in many
places, including the US in particular.
So I doubt that China can really save
the date in terms of global inflation
problem.
On the other hand, the second.
Though, is that when you look at the
outlook for China’s growth, it’s one
where the economy is facing both
cyclical and structural problems,
challenges.
So strictly the attitudes of the efforts
towards the private sector is something
that comes to mind.
But cyclically as well, what happens to
the property sector?
So we did have strong numbers in Q1.
However, how sustainable that is, it’s
an open question.
Okay.
I guess from M.B.
and Yan and some of the others, are
there any currency that would really
suffer if the dollar remains at these
levels or goes even higher?
So listen, the currencies that have
particularly low yields in emerging
markets, in particular, ones that would
be suffering, I can think about Chilean
peso, where the folks, for instance,
have been cutting quite aggressively.
That reduces the attractiveness of the
local currency.
Okay, Marcelo, thank you so much.
Marcello Carvalho there from BNP Paribas
and Bloomberg’s Justin Lee.
Now coming up, but record revenue at
Santander cost slower, weighing on the
overall results.
So we’ll hear more of our interview with
the Spanish lender’s chief financial
officer.
This is Bloomberg.
We have businesses in Europe that will
benefit from lower rates, but also
businesses in South America and on the
consumer side, that will also benefit as
rates go down.
We have negative sensitivity to rates in
South America, positive sensitivity to
rates in Europe.
So we we will have a positive
combination.
And now we see in a sequentially growing
quarter after quarter this year.
Even with the current estimate for rates
in the US, South America and Europe.
Good morning.
It’s Guy.
What’s the outlook for a pickup in
revenue in Brazil?
Brazil will benefit from lower rates
with rates peaked at 1375.
We think they will be at 99 and halve
this year, even lower next year.
Lower rates means more activity, better
asset quality.
But more importantly, as I said, of
sensitivity to rates in Brazil is
negative, which means that revenue will
benefit from lower rates.
We are starting to see that already in
the first quarter and it will accelerate
towards the second half of the year.
So the outlook for revenue in Brazil
with this level of rates and the outlook
for even lower rates in the second half
of the year, next year is even better.
Well, the Santander chief financial
officer there speaking to Bloomberg.
Now, the bank’s push to expand
investment banking drove up expenses in
the first quarter, tempering stronger
than expected income from lending.
Now we have some results of preliminary
results from Europe’s top economies
Germany, France, Italy, actually all
grew more than anticipated.
Now, what this is suggesting, although
we have to see some of the other
countries and of course, whether the
trend really stays like that, it
suggests recovery is taking hold in the
region after a mild recession last year.
Now, a bumper series of data also
expected to show the eurozone’s
prospects could be brightening after
higher inflation, rising interest rates
and weak global demand saw output shrink
in the second half of 2023.
So we’ll see with the full results a
little bit later on.
Of course, helping revive the region is
Germany, which exited quite a difficult
time, especially because of the troubled
industrial sector.
Coming up, we’ll take a look at the
investment outlook in the UK.
We’ll be joined by Dominic Johnson, the
investment minister in the U.K.
Department of Business and Trade.
That’s next.
And this is Bloomberg.
Now the HSBC chief executive, Noel
Quinn, is unexpectedly stepping down
after nearly five years in the job.
Europe’s largest bank says they’ll
consider internal and external
candidates a difficult start to the year
for German automakers, with earnings
tumbling 20% of VW and more than 30% at
Mercedes in the first quarter.
Plus, all four of the euro area’s
largest economies performed better than
expected in the first quarter,
suggesting a recovery is taking hold in
the region.
Well, good morning, everyone, and
welcome to The Pulse.
I’m Francine Lacqua here in London.
So Bloomberg understands that BHP is
considering making an improved proposal
for Anglo American.
That’s according to people familiar with
the matter.
BHP is initial offer of $39 billion was
rejected by the London listed miner.
But if the megadeal were to be
successful, would this be another nail
in the coffin for UK listing?
Well, let’s discuss this and much more.
Dominique Johnson, the investment
minister in the UK Department for
Business and Trade, Lord Johnson, thank
you so much for joining us.
Thanks for having me.
This amazing building with Bloomberg
stuck it in.
I mean, this is like proper foreign
investment coming in to the UK capital.
First of all, no relation to Boris
Johnson because we’ve had emails on
this.
Please, I’m no relation to Boris, so
it’s good to put it out on the table.
Someone said, Am I his father?
Which I still find a little bit, little
bit distressing.
But no, I’m no relation of Boris
Johnson.
So now.
Okay.
So when you look at some of the
investment and there has been, you know,
some pretty strong investment coming
from abroad, especially with cars, which
I want to talk about in a second.
If you look at BHP and Anglo, so there’s
a concern that some of the commodity
rich mining companies want to move away
from the UK.
Would a takeover like this be
problematic for the Footsie and UK PLC?
Well, first I think you would let free
markets be free.
And actually what I’ve been quite
interested by over the last ten days or
so is we’ve had three takeover bids of
three UK companies, Royal Mail,
Darktrace, now Anglo American.
And my question to you is, what does
that say?
I think it implies that this market
actually is a great market with some
phenomenal companies and people can see
huge amounts of intrinsic value.
That’s still to be realised.
So, you know, in some respects it points
to the positivity of the opportunities
in the UK rather than sort of some
gloomy outlook.
But, but they could take them out of the
market, right?
They can pick the they can do that.
They can do that.
But if you look at what the potential
buyer of Darktrace said, for example,
they’ve made it very clear this is a UK
company staying in the UK.
They’re going to invest in it.
Obviously Royal Mail is going to stay in
the UK.
I mean, I think that we’ve got to be
sort of quite rational about this.
We want to support the markets.
We’re bringing important reforms, by the
way, like the Edinburgh reforms to get
more domestic capital back into the
markets.
We’re also doing sort of sensible
deregulatory measures such as around
method two that I’m sure many of the
people watching this programme will
groan when I say over to you that these
are important changes because we need a
vibrant small cat market, we need a
vibrant fund management market, and
these these things will make a big
difference.
So I’m actually very optimistic and as I
say, you know, but what are the telltale
signs of a stock market?
It’s opportunities and people are seeing
the opportunities today.
I mean, the French take a different view
when it comes to their homegrown
companies, is that they actually don’t
want foreign buyers to come in too much
because then you lose control.
You lose.
They don’t become UK champions anymore.
In their case, French champions.
Do you have that nagging feeling that
actually at some at the margins, UK PLC
seems to be protected?
Well, listen, the reason why you’re here
and you haven’t got your head office in
Paris is because this is an
international free capital market and
the LSC is still one of the major
markets in the world.
You know, this is the international
capital for finance.
You can’t have that and protect your
market at the same time.
So I don’t relish the French position.
I mean, I think it’s a phenomenal
economy and no derogation yet, but we’ve
done the right thing here.
This is a truly capitalist market and it
will enable us to have the capital, to
have the innovation and investment to
drive forward.
So, you know, single companies must
move.
It’s got to be free.
We support that.
But we have to make the reforms
domestically to ensure that our own
domestic market can function properly.
I mean, if you look at big oil and gas,
if you look at mining companies, there’s
a belief among chief executives that
there’s a European discount because
actually investors, pension funds don’t
buy into them as much as they buy, for
example, Exxon, Chevron.
Now, that can be debated, but I think
there’s.
Do you think there’s there’s a problem?
Yes, I do, actually.
And I think we’ve recognised it.
So in terms of what I’m not sure about
specific sectors, but in terms of the
domestic pensions industry in Europe,
it’s very sort of debt based and in the
UK it’s become very debt based too.
So what we’re trying to do is to push
pension funds and the big life insurance
companies by encouraging managed risk to
bring them back into the market, both
public and private.
I mean, the great statistic, which I’m
sure you’ve you’ve talked about on this
on this show, I think 30 years ago, half
of all allocations were to UK domestic
equities.
Now I think it’s 3%.
So even if you took a global MSCI basis,
it should be six, seven, 8%.
So there’s something wrong there.
So so we need to look at how we have our
regulatory frameworks and how the
culture needs to be managed to to, as I
say, to ensure that we have properly
risk controlled investment policies.
I mean, again, you know, some critics
would say that the UK has become a yield
stock nation, so that there is a danger
that the new listing models, you know,
pushes companies to give back dividends
and said, I totally agree, I totally
agree with you.
I mean I think that we’ve got to be
quite proud of these new companies that
are very innovative.
And of course, they’re not the classic
sort of UK stock market companies.
Obviously they’ve got short track
record.
They probably have high levels of debt.
They’re not paying dividends because
they’re reinvesting.
So there’s a cultural issue for sure,
but there are also some structural
things that we can do, and we recognize
that.
So I think if I think what the
Chancellor’s done, he’s been really
innovative in his Edinburgh reforms and
Mansion House compact.
So people watching this show, you know,
it’s about the future, what country is
actually looking to the future to try
and correct some of the problems of the
past and the UK definitely is.
But Lord Jones, I mean, I think that
what I hear the most is actually that
there is this it doesn’t necessarily
have a risk taking culture, so be it,
you know, the pension funds or the
regulators.
It takes time to change that mindset
that you’re going to grow.
You need to take risk.
Yes, of course you do.
Risk is everything.
So by trying to manage risk out of the
market entirely, you have serious
unintended consequences as a result,
which you never get your long term
returns.
So one of my new jobs talking about
earlier is regulatory reform.
So it’s not just in financial services,
it’s across the board and it’s making
regulators think about how they look at
risk within their universe and also to
provide, you know, look at regulation as
a service rather than as a blocker.
So we have tended to layer on a lot of
regulation.
And the benefit to change that is free
doesn’t cost anything from the Treasury
and it releases people’s ambitions.
So this agenda is incredibly important
and it’s a by the way, it’s a
Conservative government agenda.
What’s what’s most frustrating being a
minister right now?
I mean, you know, that’s a great
question.
You’re looking at elections soon, in the
next eight months, but you know, at the
latest and the conservatives are doing
pretty terrible things.
I mean, I think the biggest frustrating
for me coming into government from
business I spent 30 years in this world
is trying to get the message out.
And when I tell people the reality of
what’s happening in the UK economy and
some of the new industries like advanced
manufacturing, clean tech, whatever,
they’re amazed.
And they say to me after these
presentations, we didn’t know that.
Why didn’t someone tell us?
So the message opacity is the biggest
research, so they don’t need someone to
tell them, Right?
I think I think you have to market,
you’ve got to go out.
And so when I go to the States people, I
think they’ve taken sometimes a negative
post-Brexit view of Britain when
actually the opportunities are huge and
the vision is enormously positive.
So the frustration for me is, is
sometimes the difficulty in getting a
really strong message out about what
we’ve achieved and what this economy is
doing on Thames Water.
I mean, a lot of shareholders are
saying, look, this is the water utility
companies.
An investor will probably be wiped out
in the administration process.
Does that mean it’s going to be much
more difficult to attract investors to
something that frankly was considered a
boring and safe asset?
I mean, it’s a good question.
I’m going to avoid talking about
specific instances.
Of course, you know, that’s very
complicated and sensitive.
And what I will say is investment in our
infrastructure is absolutely crucial.
And so we have to work very hard with
all the regulators.
That’s also on the power side, by the
way, where we need huge investment,
waterside, telecoms and so on to make
sure investors feel that we have a
predictable and consistent policy
framework and they can generate sensible
long term returns.
So I mean, I think in many respects this
is an opportunity to rethink some of the
mechanisms for attracting
public capital, international capital,
into these quite heavily regulated
markets.
But, Minister, I mean, you had investors
such as China’s Sovereign Wealth Fund,
Abu Dhabi Sovereign Wealth fund unit,
the Canadian pension owners in Thames
Water.
You must have fielded questions from
then in going, what the heck happened?
Well, I mean, as I say, I left that to
the Department for fabric culture,
particularly to focus on the regulation.
I think it’s very important actually.
Regulators are independent.
You know, I’ve got obviously my views.
My job is to go out and attract
investment.
And actually, we’ve got dozens of water
companies with a lot of very happy
investors, you know, companies like
Whitehall and numerous other pension
funds and sovereign wealth funds.
They’re heavily invested and they’re
putting more money into the water
sector.
So you’re always going to get, as you
talked about, you know, Anglo American,
you’re going to get isolated examples.
It’s important that we don’t then use
that as a sort of template to distort
the rest of the picture.
And actually, we do live in free markets
and there has to be market successes and
they’ve got to be market failure and a
managed risk.
But actually the investor base is quite
positive about water.
And also the other utility sector, which
is really exciting, is of course clean
energy and power and I think often have
done a fabulous job in encouraging
investment in that sector.
I mean, the car the car industry
actually has gotten quite a boost.
Has the current cars.
The cars, of course, it’s been amazing.
I know the motoring battery, just
incredible.
Incredible.
But then you have EV makers saying
actually the demand is slowing down a
little bit.
So do you need to scale back the amount
of investment some of these
gigafactories we just started, I mean,
the Tata Gigafactory in Somerset, it
really did like the blue touch paper for
an explosion in advanced manufacturing.
And now we’ve got stellantis making fits
in the UK.
You’ve got BMW committing to mini got
Nissan, which has been have been a huge
leader and a crucial part of our economy
for for many decades.
So I’m an I’m just amazed by what’s
happened in the last 18 months in our
auto industry Now, you know EVs, I’m
just thinking about this on the way in.
It’s not going to happen overnight.
It takes time.
We actually need to invest in charging
points to make sure the infrastructure
is there to support them.
Frankly, we also need to invest in
battery technology, which is what the
British government is doing, paying a
lot of money into a battery innovation
centre and other such projects.
So it will take time and actually that’s
what Rishi Sunak said a few months ago.
You know, we’re going to get there,
we’re going to get to net zero, we’re
going to transition our motor industry,
which does take time.
I mean it couldn’t be more exciting.
I think we’ve had more interesting
investment in the UK than any other
country in the world except probably
China.
When it comes to the TV industry.
That’s amazing.
How much money has the U.K.
government actually pledged to make sure
that these gigafactories.
Go ahead.
Sure.
So the overall advanced manufacturing
plan is, I think, four, four and a half
billion.
So it’s a huge amount.
We supported Tata with a meaningful
allocation of capital.
We supported Nissan.
I think we’ve given support really to to
all the major car manufacturers in order
to make sure their businesses are here.
But also, you’ve got some quite
interesting smaller businesses like
McLaren.
I went to see them the other day owned
by the Bahrainis.
You know, they’re developing amazing
technology and really it’s about
production and technology.
So you have to marry the two.
And we’ve absolutely sat alongside these
companies in partnership.
As a Tory minister, what are you
thinking now that you can maybe win the
election or you’re just trying not to
lose by too much?
I definitely think we can win the
election.
I think it’s extraordinary that people
should suggest that, you know, it’s not
something you want to play for.
Well, the polls are not in your favour.
I know the polls are often not in.
Many people say that if you look back a
year before the 92 election, we were 20
points behind.
And by the way, in 2017, Theresa may was
20 points ahead when she went into the
election and very nearly lost out to
Labour.
So there’s everything to play for.
What investors want to see is a
consistent, stable and predictable
environment.
And Rishi Sunak’s now government offer
that those are the real plans and we’re
putting our money where our mouth is in
advanced manufacturing, in life sciences
and deep tech and AI.
So, you know, I’m enormously optimistic.
And money’s pouring in.
I couldn’t be having more fun going out
and telling people about the UK.
Do you think the Prime Minister has a
date in mind for the election or he’s
still figuring out what he.
He hasn’t told me if he does.
I mean, I think he’s been pretty clear
that we’re looking for Autumn is a
reasonable, logical time for that.
But the reality is, you know, this is a
great country to invest in.
And so my job, you know, hopefully six
months before an election is to go out
and tell people the story and try and
get more money in.
You know, it’s a daily, daily it’s the
daily grind every day.
Another dollar.
That’s a perfect elevator pitch.
Minister, thank you very much for
joining us.
That was Lord Dominic Johnson,
investment minister at the UK Department
of Business and Trade.
Now coming up, we’ll talk planes, trains
and automobiles as we bring you a
roundup of European results.
This is Bloomberg.
The conversations that matter, the
insights you need.
This is the pulse and Francine Lacqua
here in London.
Now, from trainers to planes and even
autos, it’s been a busy morning, I’ll
say, of European earnings.
Both VW and Mercedes have seen their
shares fall after their earnings
slumped.
Now, Adidas reported increased
profitability in the first quarter,
boosted by demand for sneakers like the
samba.
Now let’s unpack the numbers with
Bloomberg’s Oliver Crook in Berlin.
We can’t see your shoes.
They’re probably a pair of the new cool
ones.
But a disappointing morning in general
for German earnings.
There’s a bright spot.
Adidas.
Yeah.
I hate to disappoint you, Francine,
because my shoes are not new and cool
Their converse, which is actually owned
by Nike, which I looked up just before I
went on air today.
But listen, the story at Adidas this
morning is that, you know, the profit
accelerated more than anticipated.
We are seeing a lot of pricing power for
us in the market, which is a positive
sign, particularly in contrast to what
we’ve seen from the autos.
Inventories have come down by 20%.
This was a major issue last quarter when
we were talking about their earnings.
And they’ve really come out kind of you
step back in the macro, the whole Yeezy
controversy fairly well, being able to
sell some of that inventory because, you
know, they didn’t want to destroy the
products and also that they were able to
sort of say that they’re going to donate
some of it, but really came out a lot
better than anticipated.
And when you look at the regional
breakdown, you know, the strong region
this quarter was Europe up 14%.
China is starting to recover.
You see 8% there.
That’s after some sort of nationalistic
buying.
Some concern last year there.
And it’s actually the North America
which, you know, whose economy is
supposed to be the strongest right now.
It was actually down about 4%.
They expect that to recover in the
second half.
But that’s really the story going into
the corner.
And the shares are down a little bit.
I’ll go to the last refuge of when we
don’t really know why.
Maybe a bit of profit taking after the
stock was up 25% this year.
Okay.
I love that.
That’s always what analysts say when
they don’t quite know how to explain
just how bad a quarter was this for
autos, Ali.
Yeah.
So the the contrast out of sector is a
really awful quarter.
When you look at the earnings.
They have a tough comp from the first
quarter of last year.
I mean for Mercedes, it was down 34% in
terms of profit.
Volkswagen down 20%.
Stellantis also out, down 12%.
You saw also their margins came in well
below anticipated from what the analysts
were looking for.
So you see that in the stock this
morning.
You know, there’s an issue of cyclical
demand here and then sort of a general
downturn in demand for cars more
broadly.
They’re also switching up a lot of their
models right now, which takes a lot of
money and it takes a lot of time, but
also EV demand BMW, of all the German
automakers was really the only one that
was able to hold on to the EV market in
the first quarter.
Volkswagen and Mercedes all saw that go
down.
They’re all trying to convince investors
today that Q1 is actually going to be
the trough for sales for the auto
sector.
But this morning, the investors not
necessarily buying that with the shares
sharply down for all those.
Oh, they think so much.
Bloomberg’s Oliver Crook in Berlin.
Now, from cars to planes, two of
Europe’s largest airlines are planning
to cut costs after a difficult first
quarter.
Lufthansa plans to freeze projects and
review hiring in some areas.
It was forced to pare back its earnings
outlook for the year.
Now, Air France KLM will freeze the
hiring for support staff after reporting
a wider first quarter operating loss.
For more on all this, let’s get straight
to Syd Philip.
He is Bloomberg’s senior global aviation
reporter, said, You always make us
smarter on all things planes and, of
course, airlines.
So what do the first quarter earnings
tell us about the difficulty in the
sector?
So the first quarter is typically the
weakest quarter for the airline industry
because you’re coming out of the winter
going into the summer.
And the summer is essentially crucial.
But it also tells us about the
difficulties that both Lufthansa and Air
France have had.
Air France has struggled with capacity.
Lufthansa struggled with strikes.
Both of them have struggled with costs.
As wage costs go up.
And essentially, it gets much more
difficult in terms of just the overall
geopolitics.
And so both the airlines have talked
about how they’re going to look at
cutting costs and as a way of trying to
return back to profitability for full
year earnings.
So, as you say, some are so crucial.
When do we get a sense of bookings for
the summer?
Do people book in advance or have we
changed the way we book air flights?
So it’s actually a very good question
because at the moment people tend to
book in now is when people start booking
for their summer holidays in Europe
typically.
And so in the next few weeks, we’ll
really see what the booking curve looks
like, even if we don’t really know what
the full profile of the bookings look
like.
So for the airlines, the next few weeks
are crucial as they get demand sort of
ramped up and they look at people sort
of booking and locking down the
holidays.
Is the lack of aircraft a problem for
the industry?
It is a massive problem for the industry
at the moment because the both Boeing
and Airbus have struggled to produce
enough planes.
I mean, Airbus has struggled with supply
chain issues.
Boeing is struggling with FAA caps on
this production.
So both of them are really struggled to
get airplanes into their fleet.
And essentially that’s meant that all
the aircraft are still going strong and
essentially also a huge demand for old
aircraft.
So airlines that were looking to
typically look at leasing new aircraft
from from the market, it’s the lease
rates have gone up and it’s much more
difficult to get new planes.
And so it’s going to be a very tricky
scenario for new aircraft as well as
used aircraft.
I mean, use aircraft are having a
resurgence a moment in the sun, Really?
Yeah.
So interesting.
Sam, thank you so much, as always, said
Philip there at Bloomberg Senior Global
Aviation Reporter.
Now coming up, we talk crypto and
binance’s fortunes are set to grow,
potentially making its ex-chief
executive the richest u.s.
inmate ever.
We look ahead to his sentencing hearing
later today and explore the
cryptocurrencies exchange empire in the
big take next.
This is bloomberg.
We obviously would like to have more
consensus agreement on some of the
biggest and more important reforms of
the space need controlling the public
debt over the long term, a sort of
fiscal consolidation path, increasing
productivity, the housing market where
we are seeing a scarcity of supply, of
new of new housing, all of these things
are important.
They would benefit a lot from large
majorities, so we would all want to see
that.
But at the same time, I think we are
also looking at what is the difficulty
in politics today, taking it with with a
pinch of salt.
Well, kosher Bank chief executive
Gonzalo Cortazar, speaking exclusively
to Bloomberg about the political
instability in Spain.
Now the Binance ex-chief executive
Changpeng Zhao is about to learn if
he’ll be the richest U.S.
inmate ever in a sentencing hearing
later today.
But with friends on the company’s board,
his ownership of the exchange is intact
and the mother of his children helping
to run the show.
The company he built continues to thrive
with his lingering influence.
We’ll get more from Bloomberg’s crypto
reporter, Emily Nicole.
Emily.
Good morning.
So remind us how we actually got here.
So it’s been a tumultuous time for the
crypto industry over the last few years
with the blow of FTX in November 2022
and at the time Binance was even
considering buying that exchange.
And then only a year later did we see
Binance itself come under the microscope
in the legal landscape in the US.
Binance agreed to pay $4.3 billion in
penalties for anti-money laundering and
sanctions violations, and SEISS himself
also agreed to step down as CEO and pay
a penalty.
So, Emily, where does this leave
Binance?
The company, and seizes Fortune.
Well, violence has continued to operate
as normal almost.
It’s the world’s largest crypto exchange
is dominance of that has not changed.
It’s maybe at the little bit slightly,
but you know, all in all, it’s still the
biggest.
Zhao is no longer at the top as well.
There’s a new successor in his place,
Richard Tang, but he’s still the
controlling shareholder of quite a lot
of Binance’s entities and that’s not
likely to change that.
His fortune, in essence is is intact.
So what parallels should we draw between
Sisi and of his disgraced founder, Sam
Black, when freed?
And do the pair’s guilty verdicts
actually to spell an end of an era in
crypto?
It feels very different, I think.
Well, you know, the crimes are very
different.
What Sam agreed to in his RTX is in case
was, you know, he basically admitted to
misusing user funds in when he was
charged.
And now to some have said sorry, but
that’s why his case is a lot longer.
His term is a lot longer than what Joe
is facing.
Finance never admitted to misusing any
users funds.
It simply had some compliance missteps.
And that’s why the two are very
different.
The landscape of crypto, however, is
change.
You know, we’ve had two big platforms
blow up in the past two years in terms
of, you know, whether or not they were
now there or not.
You know, there’s legal issues there.
And so going forward, a lot of
institutions are thinking about assets
like Bitcoin with these gaps in the U.S.
But whether or not that trust for
exchanges is there is another matter.
Emily, thanks so much.
I mean, it’s such an drink space because
also a batch of ETFs directly invested,
of course, in crypto debuted in Hong
Kong today, heralding this competition
between Hong Kong and the US for some of
these possible Bitcoin products.
Emily Nicole They’re looking at crypto
for us now.
We’re getting a little bit more data.
Again, we had France GDP, we have
Italian GDP in Germany, GDP that was
better than expected.
Eurozone GDP actually breaks in just a
couple of minutes.
So we’ll see some of the other countries
and how that amalgamate as well.
Bloomberg brief is up next.
They’ll have a full analysis with Danny
and Manners on where the dollar goes
next and of course the Fed and
everything to do with crypto.
This is Bloomberg.

The Eurozone’s mild recession is over but inflation is proving sticky. We discuss the outlook for the ECB and Fed with Marcelo Carvalho, Global Head of Economics at BNP Paribas CIB.

Meanwhile the investment outlook for the UK remains in the spotlight, with a range of corporate headlines including BHP’s bid for Anglo American and the crisis at Thames Water. UK investment minister, Dominic Johnson, talks about the challenges and opportunities facing the UK.

“The Pulse With Francine Lacqua” is all about conversations with high profile guests in the beating heart of global business, economics, finance and politics. Based in London, we go wherever the story is, bringing you exclusive interviews and market-moving scoops.
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‘Surprised’ If Fed Cuts Before December: BNP CIB | The Pulse with Francine Lacqua 04/30/24

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