Good morning, everybody. It is Tuesday, October 6. Here's what's on the agenda. French students will take to the streets and Le Pen will present her alternative budget. We're watching OATs. Bessent said he can bend the U.S. debt curve as yields at 24-year highs focus the mind, and the Nasdaq hits a record despite higher yields. American and Chinese LLMs just keep on raising funds.
Let's talk about where we are with these markets. What you said into the numbers, euro-dollar, that's the kind of story we got at the moment to deal with when it comes to Europe. We're back above 1.12. Is that a positive indication for OATs opening in 30 minutes' time? I don't know. If you look at what's happening with Treasuries, as you indicated, we are holding near highs right now. 5.3069 is where we are trading. U.S. equities, though, as you also say, had a very strong day yesterday. Europe is continuing to build upon that. The Stoxx 50 currently, in terms of the futures picture, up by half of 1%. Lots to fold in this morning, but yields are very, very high. France remains in focus. The countdown to the opening trade starts right now.
Welcome to the program, everybody. This is "The Opening Trade." Just gone 7:00 this Tuesday, October 6. Once again we're focused on France and a number of set-piece events today that will certainly focus the minds, the wider political landscape in France, at a time when the budget is very much under discussion and spreads are in focus for financial markets. That wasn't the case yesterday, Guy. We actually saw yields in France coming down yesterday as yields in the rest of Europe went up, which is slightly curious. In terms of the bigger picture, we've been watching wider spreads for a while. So protests on the streets once again — they started in September but they gained extra momentum last week. We've seen thousands of arrests of young people in France. Meanwhile, Le Pen will be presenting her counter-budget, and all of this at a time when we are watching spreads and watching CDS around French banks actually widen a little bit. Not dramatically, perhaps, but widening a little bit versus Germany. When you look at SocGen and BNP, so that's something that the market is clearly focused in on. And we're watching the euro because, of course, all the developments in Spain yesterday as well.
What is the relationship between what is happening on the streets and what is happening in the markets? That bit I'm still a bit curious about. Does it tell me that it will be harder to bring down any spending commitments going forward? The process is largely about education spending. That tells you maybe that it will be hard politically to do what is necessary. Despite Le Pen coming out, we expect later on today with a plan to cut spending, $25 billion a year. That's her kind of long-term trajectory that she hopes will impose some sort of fiscal discipline around her campaign.
And give her that kind of credibility. But it might backfire. So we're going to watch that one very, very carefully. It's what's happening in the market at the moment, though. To what extent is France being caught up in something that is wider? U.S. Treasuries are obviously near highs in terms of the yields. What's the feedback loop between France and Treasuries right now? How are the Japanese playing their role in that? Is there any kind of circuit breaker that you can see at the moment that is going to act maybe to change this? The ECB is not sounding particularly positive, I don't think, in terms of the action it can take, because the piece this morning from a former chief economist talking about the fact we need to cut QT, but that doesn't feel like it's going to be enough.
And some of the limited action the last 24 hours from the ECB seems — there was some hawkish commentary from somebody you would expect to be hawkish, and it didn't seem there was any real change in terms of tone from the ECB given the context. The euro at 1.12. And with global bond markets, I was also drawing links between populism, globalization, policy against China. All of that later on in the week is going to be in focus, because France and Germany are calling on the EU to toughen up its armory, if you like, against Chinese trade threats, so that if they need them, they can do something as drastic as cutting China out of European trade. I'm not suggesting it will happen now, but interesting that France and Germany, symbolically, they are leading that charge. What they can do in the face of a rare earth export ban from China, I don't know. But that certainly is interesting that they are leading that charge.
The danger is that latter point could exacerbate what we're already seeing. A trade war with China — how would the bond market perceive that? What would be the take on that? Because in theory, actually, you can argue that would be a further factor which would add to the inflation impulse we've already got. Maybe as a challenge. Scott Bessent thinks he can bend the curve. Scott Bessent thinks that spending in the United States is going to come down. That wasn't the evidence in the market yesterday. The Treasury Secretary having some very positive comments about what he thinks can happen. He thinks that actually the tariff situation was a one-off. That's going to be reversed very soon. Things are going to look better soon. And the evidence from the market, the commentary coming out of the market, tells you exactly the opposite of what Bessent is referring to.
Right. There was one line from Macquarie saying a stated ambition — maybe that's what we're hearing from Bessent — a stated ambition is not a plan, and a suggestion maybe that there's some dots that need joining. We did hear from Scott Bessent some time ago. President Trump had asked him and other voices in Washington to tackle the deficit, but there wasn't any action plan that came from that necessarily. Meanwhile, in related matters, we're watching what's going on with oil, of course, because this has been something the bond market has been watching very carefully. It sort of stalled around $100 a barrel.
Counterforces on the one hand: Yemeni forces and Saudi pushing back the Houthis, which might bring the oil price down. It could keep them elevated because of a sign of tension in the region. But we also got signs of normalization in terms of flow through the Strait of Hormuz, and the Kuwaitis talking about pumping at 75% levels.
Tech doesn't care. You got the OpenAI story raising gargantuan quantities of money again. What's happening is amazing. You got a credit market that is looking a little bit more stressed now. Yet when it comes to AI, we're not worried. You got basically a risk transfer coming out of OpenAI into the credit market, which is a factor as well. And you got this moonshot story in the United States, in China. But the magnitude difference between China raising money for AI and the U.S. raising money for AI — just amazing.
You talk about the different valuations. If you look at Moonshot, the latest fundraising there puts the value on it at about $50 billion. That sounds like a big number, until you go to the OpenAI story. They pushed back their IPO, as you said, still managing to raise money, and a value in the latest fundraising of $1.4 trillion. So many multiples in difference. And DeepSeek in the Chinese space, and also looking at new funding there. That's coming in better than had been their expectations. They're planning an IPO at the beginning of 2027. As we knew, we had this congestion around the U.S. tech companies coming to market next year, or at least that's the expectation in some quarters. We then hear from DeepSeek, we hear from Moonshot, and both of those are planning IPOs at the start of next year. Nvidia at a record. The Mag Seven nearing a $25 trillion valuation, if you add them all together. Raising the prospect that maybe the capex story is pretty priced now, and maybe that's not where you go looking for investment returns. You actually may want to start pivoting back into consumer-facing industries. That's one suggestion from Bank of America overnight.
"New York Times" piece worth throwing in. Reporting that OpenAI's technology has been meddling — they used the word meddling — with U.S. government websites. Not hacking. Meddling.
You find yourself in front of lawmakers.
You do quite quickly. But that speaks to the idea that IPOs could be trickier than we thought, I think, just raises that legal story once again. Sounds like we know what we're talking about, doesn't it? When it comes to technology, the person who knows what they're talking about is Tom Mackenzie. J.P. Morgan's tech conference kicking off. 500 industry leaders, investors, gathering to explore lots of things around tech, AI, what it's going to mean. But Tom is there, and that's the important thing, at the event. Lots — what's top of the agenda for you, Tom?
Guy, I think top of the agenda for me has to be that cost of capital question and how far does this have to run, given J.P. Morgan itself, its own bankers are marketing a debt product of about 11% with a yield of about 11% for a data buildout in Norway. And this is as good as it gets? What you talked about OpenAI and talked about what's happening in China in terms of the fundraising. Maybe we put China to one side because it's fairly idiosyncratic. The fundraising continues and the buildout — Google's deal with Constellation for nuclear energy, $1 billion. How far does that have to run in an environment where we have yields at multi-decade highs? You pointed out the fact that the Nasdaq has hit two record highs. Is tech a safe haven, or are we getting to the point where this has to be called into question now? How much of the return on investment has to come through if you are, like SoftBank, paying 9% in terms of the yield to finance the buildout? If you're paying 11% for a data center buildout in Norway, that question has to be there. I know the bank in the room as well, and some of the discussion with the team are also keen to talk about the IPO pipeline, dealmaking. That is very much front and center. You have discussed and talked about some of those IPOs being pushed back, and OpenAI into 2027. That will be part of the conversation. And private equity as well — I'll be speaking to the head of private equity investment banking about the constipation in private equity and how they return some of that capital, DPI, back to their investors. Where are we in that story? And that is also going to be part of the conversation here, as it brings together bankers but also founders and those from venture capital and private equity here in central London to have some of these conversations, Guy. Anna.
Tom, thank you very much indeed. Tom Mackenzie at the J.P. Morgan tech stocks conference, and some great guests lined up throughout the day. He's going to be busy. It includes a key conversation a little later on today with the man himself, J.P. Morgan CEO Jamie Dimon, joining Bloomberg at 2:00 PM UK time.
We will be watching that J.P. Morgan tech stocks event. Other things we are watching — we already mentioned a couple of interesting developments in France to keep an eye on. 9:00 AM UK time: France's National Rally candidate Marine Le Pen presents her counter-budget. The backdrop to this is more students protesting. 9:30 AM UK: Catherine Mann will be speaking. At 10:00 AM UK: euro area retail sales. We have the Greenwich Economic Forum getting under way today. And later, Fed speak from John Williams, Michelle Bowman and Jeffrey Schmid. And at the end of last week we had some dovish commentary from the Fed and some data that you could have interpreted dovishly if you wanted, but bond markets didn't seem ready or interested in that message.
Also what Katharine Mann has to say at the Bank of England. The outer edge of the MPC at the moment, concerned about second-round effects. How long can the Bank of England resist this incoming inflation wave that we are currently seeing? Talking of which, Yemen's armed forces have recaptured a key city on the Red Sea coast, this as they look to dislodge fighters from the vital strait. More on that story coming up. Plus Ray Dalio warning Treasuries are vulnerable to a pullback in demand from China and Japan. We'll bring you some of that interview with the Bridgewater founder. Up next, James Ringer will be joining us, global fixed income fund manager at Schroders. And if you want to join any of our conversations, we would be delighted to hear from you. IB+BBTV <GO> is the function. This is Bloomberg.
Welcome back. This is "The Opening Trade." 7:16 in London. 45 minutes to go until the start of cash equities trading, and European futures are pointing higher. They have a little bit of catch-up with the U.S. session of yesterday, Guy. It closed out at — when Europe closed, the U.S. was just a little higher. So we have to catch up.
A little bit of headroom we need to price in first thing this morning. We are around 14 minutes or less from the opening of European government bonds. That is the next big risk event. Currently, long-dated Treasury yields holding near their highest levels in 24 years. We saw renewed selling yesterday. French OATs still the focus in Europe. Ray Dalio warning the country has reached its borrowing limit, and Francois de Rugy telling "The New York Times" his country risks being strangled by rising interest rates. Joining us, James Ringer, global fixed income fund manager at Schroders. Good morning. Let's start in France. Is there a level at which France is attractive? How far away could that level be? Or is France just untouchable between now and the 2027 presidential election?
I think it's probably more the latter. It's difficult to see what any near-term alternatives in Europe at the moment. We've seen quite a bit of contagion, and as spreads widen, it takes out the better-quality names as well. So for us, the opportunity would be in those names instead.
And names — to those names. Italy keeps getting hit. When France gets hit, we were discussing in the break that's probably a liquidity story. Spain has an election, and you have to fold it in in terms of risk. Other than going to Germany or the Netherlands or somewhere like that, where specifically is the value? And if you're taking that risk outside France, how much contagion risk do you need to think about?
You have to first think about a lot of contagion risk. We were discussing off air when the liquidity dries up like it did in the OATs last week, despite being a big market, people reach to other markets to hedge their French risks, and we have to be very conscious of contagion. Spain, I think the story is still very, very positive there. Italy, you mentioned, and also Greece. All three of those are making steps in the right direction on fiscal deficits, and so we would use any widening of that to be adding to positions there.
And James, when you think about places to go as yields rise and as bonds continue to sell off, you make the point that there's a wider investing landscape than just government bonds, of course. And you prefer things like mortgage-backed securities, covered bonds, instead of what — dollar and euro-denominated investment grade, maybe government bonds, maybe corporate, you tell me. What is it that you prefer against what?
Mainly a valuation story. No one can really argue that the fundamentals are weak for credit, for investment grade credit. Growth is strong. Corporate fundamentals are strong. It's more of a valuation thing. And we've seen a retracement or a widening, especially in European investment grade credit. That is starting to get more interesting for us. But within the U.S., you don't have to drop much in yield terms from moving from dollar IG to mortgage-backed securities, and a softer way of getting exposure to Treasuries long given the selloff that we've seen. So it's effectively a soft long U.S. Treasury position and a little bit more yield.
Does that resilience or strength of the U.S. economy — does it support everybody? We talked about triple-Cs on this program and about areas of weakness within the credit landscape.
Yeah. You have to be careful with single-name exposure. So when we allocate things like high yield, we try to do it on a diversified basis. But really, there is nothing — when you're running the nominal GDP that you are in the U.S., with an administration that seems to be very growth-supportive, it is hard to be too negative on U.S. risk assets.
What happens if that growth momentum starts to fade? I agree, at the moment it isn't. But we are running at — if you look at aggregate demand and you think about all the factors that go into aggregate demand, all of them seem to be on fire at the moment. Investment is on fire. Government spending is on fire. The consumer actually looks like it's spending a lot of money despite what the confidence data suggests. Isn't there a danger that even the second derivative of that growth narrative starts to slow down? And if you start to see that, at these elevated levels, with the debt loads that are being carried, isn't there a risk given as well the supply that's being piled on to this market?
There is definitely a risk, but you have to step back. What is the administration trying to achieve? And maybe midterms bring that risk to the forefront. What is the U.S. administration trying to achieve? And that is very strong growth. And they have designed policy to do that, to support that. But I think if you did start to see that in the Treasury market, probably the most obvious place for that to be felt. So you can take out 85 basis points of hikes very, very quickly, and that in turn probably then provides a bit of support to those risky assets.
Yeah. It's interesting. It makes me think of what Scott Bessent has been saying the last 24 hours, saying that he seems to think that the U.S. government can bend the curve when it comes to debt. Do you see any sort of — any future lining that suggests that curve will be bent, that we will see a better path forward and more sustainable path forward for the U.S. debt load?
I think a lot of that depends on inflation and therefore on energy prices. So I think what you've seen in the curve — the curve flattening that you've seen has actually been more led by Fed repricing than what Scott Bessent has been able to do at the long end. They've had success in richening Treasuries versus swaps, but the flattening that you have seen — first a bear flattening.
Exactly. The short end. For you to see a meaningful rally across the curve, the number one thing is you need to see energy prices starting to decline, and that's not just crude. That has to be the refined products as well.
And are you assuming that's any kind of limit on U.S. action in the Middle East? None of us have a crystal ball, but do you assume because of that we don't get any kind of re-igniting of the attacks on Iran, for example? I don't know. Outside of the midterms, who knows? But certainly in the short term.
Like you said, no one has a crystal ball. But we would like to think so. There was a window of opportunity for diplomacy when they were all in New York. Unfortunately, nothing was agreed. But since then, they have both refrained from striking each other. So we do take a positive signal from that. But you just don't know.
Can I come back to the thing you were mentioning just a moment ago? The rate cuts could be — the rate hikes could be taken out if growth starts to slow. That does assume that inflation is going to come down. High oil prices are a factor. Food prices are feeding through into the system. Diesel prices in particular are a big factor and coming to rip through the U.S. economy at the current levels. Isn't there a third option, which is you have growth maybe slowing, but inflation doing the exact opposite, and the Fed, which is now committed to maybe protecting the sort of bottom half of the U.S. consumer, starts to say, actually, inflation has been too high for too long and we're not going to stop hiking rates? We're going to carry on hiking rates?
That's a very real risk and scenario we have to consider when we're building portfolios. But I think — if you take a step back, you look at where inflation is at the moment. Core CPI at 2.4%, and that's an overshoot. Not a meaningful overshoot. It's an overshoot. Core PCE slightly different, but what has been holding core PCE up, as you know, is things like AI-related inputs. And so if we see growth — as a result of the AI factor, you can probably see a little bit of cost pressure coming out from that part of the inflation index too.
James, thanks for being with us this morning. James Ringer, global fixed income fund manager over at Schroders. To think about what's happening on global bond markets as, yeah, 24-year highs in the U.S.
Okay. What else do you need to know this Tuesday morning? President Trump says the U.S. is looking into a suspected case in Russia and the death of a worker at a research laboratory. The 28-year-old died last week after developing severe pneumonia. Russian media reported she might have been exposed to the bacteria that causes bubonic plague, this after breaking a test tube at a research institute in Russia's Siberian region. Donald Trump says fresh threats of terror attacks prompted the U.S. to move its B-1 bombers from a base in the United Kingdom. This contradicting Secretary of State Marco Rubio, who earlier described the move as part of a regular rotation, and comes after five men were arrested in September on suspicion of preparing a terrorist attack. U.S. Defense Secretary Pete Hegseth said Iran was likely responsible for the thwarted attack. And Yemen's Saudi-backed government said the armed forces have captured the Red Sea city of Mocha after a campaign to retake territory held by Houthi fighters. Capturing this city puts the internationally recognized government closer to retaking the coastal region vital for control of the Bab el-Mandeb strait. This is significant, and it's going to be interesting to see what resistance the Houthis put up. But it just speaks to escalation, maybe, in that part of the world.
And I'm interested to see how oil prices take this. We started at $100 and dropped below $100 a barrel, and down to $99.85 on Brent. Because on the one hand, this is violence continuing and confrontation in the region. But the market senses this improved Saudi access to the Red Sea and the usability of the Bab el-Mandeb strait, then perhaps this means something a little bit different.
Yesterday a scare at one point, just off — talking about the idea the pipeline had been hit again, and it appears to be not the case. But again, it exposes the risk. How will the Houthis lash out if they're being pushed backward?
Absolutely. 7:26 in London. Coming up on the program: a tech rally on Wall Street pushes the Nasdaq to a record as investors shrug off worries about higher bond yields, and an exclusive conversation coming up with J.P. Morgan's co-head of tech investment banking for Europe. Tom Mackenzie is at that J.P. Morgan tech event. He will be speaking to Matthew Gehl. That conversation around investing in tech here in Europe. That's next. This is Bloomberg.
30 minutes until we start trading. In Europe, cash equities, the futures picture looks quite positive. And we're still pricing in some of the gains we saw yesterday on Wall Street. So we get a lift this morning, as you can see. And half of 1% probably across the board. And keep an eye on what's happening in France today. And data — many as well, what we're seeing in the bond market.
And the story which talks about if you strip out the major orders component, it still doesn't look great. Just wondering, do you strip out the major orders on that German data?
As you say, it does look pretty ugly. Let's look at the bond market and what picture we are getting there. We are seeing yields in Germany coming down a little bit. In Italy and Spain, so a little bit of relief then, a little bit of buying in bond markets. As we continue to watch developments over in France. In France, we do see yields at the short end come down a little bit. Not a huge amount of movement, though, this morning in terms of the bond market story. Now, a tech-led rally on Wall Street pushed the Nasdaq 100 index to a record close, as investors sought cover from mounting bond market and political worries in familiar AI plays. Our Tom Mackenzie is at the J.P. Morgan tech stocks conference in London, and he is with a guest. Tom, good morning.
Anna, thank you very much. Yes, very pleased to say I'm joined by Matthew Gehl from the J.P. Morgan tech stocks event, investment banking at J.P. Morgan. And Anna was referencing multi-decade yields, of course. We have that cost of capital question now. But we also have a reminder that companies at the frontier and companies building around the infrastructure of AI are continuing to fundraise and fundraise at pace. How much further does this have to go? Do those two things collide at some point in the near term?
I think at some point they will collide. The yields go up, future value is going to go down. But the exciting thing right now is just the future opportunity from these businesses that are raising the capital. When you think about what AI can do for the global economy, what it can do for individual companies' growth rates — we're seeing companies grow at the fastest rates ever. And so if you can show to investors you've got that type of opportunity, you can grow revenue, and in many cases these companies are growing profitably with very high returns. You can sustain a high private capital raising environment with higher yields. Just can't go on forever.
You have to show that the business has momentum. And you talked about the capex spending cycle last year from the hyperscalers continuing possibly for a couple more years. Where are we in your assessment right now for capex spending?
We're in the heart of it right now. I think every quarter we've seen increased announcements by companies as far as the spending they will be doing going forward, and more companies looking to say, how can I potentially compete with a hyperscaler model? Can I build out, increasingly, my own capex potentially for some corporates if I need to do that, given the returns are so attractive versus what I pay a third party. So we're in the meat of it right now. Very hard to see that coming to an end anytime. The only thing that we are watching closely is the debt costs of raising the capital to build that out, and starting to go higher and higher. While the hyperscalers are in a great position to do that, potentially that could create trouble for the earlier-stage neoclouds that also need access to debt markets but don't have that business model with the cash generation to fall back on and help the lending.
That's interesting. Let me push you on that. What does trouble look like for the neoclouds in that environment?
I wouldn't say there's trouble today, but the big opportunity for them is really to build out because of a future cash flow opportunity four to five years. When you compete in the debt markets against the hyperscalers, when you compete against the Nebius and CoreWeaves of the world, there's a fight for capital. If the price is going to go up, the question is, do the returns still make sense for those companies? You also see a situation where many of them are signing up agreements with frontier labs and increasingly some of the larger corporates. So as everyone is trying to chase to get the investment-grade ratings for their financing, is there enough out there for the next-gen neoclouds? Do they have to go after smaller businesses, and can you still get attractive financing for them? That's the thing we're spending a lot of time with these companies. They're doing amazing things. They're building out capability we need in the global economy. We just need to make sure they can access that at a reasonable financing rate to continue the business plans.
As we sat down, you said to me that one of the topics on the mind of people gathering here today would be IPOs and the IPO pipeline. And last year, you said that we were starting to be in the fray for IPOs. What is the current pulse on the IPO pipeline from your perspective?
If you separate into tech and non-tech, it's been fantastic here in the U.S. for IPOs overall. The tech IPO wave has been great in the total number of dollars raised, particularly with SpaceX. But we haven't seen the wave of smaller IPOs return. We are seeing some. I think you look to next year, the pipeline looks really attractive. What we need to see is a couple more of the larger deals get done, perform well, and then I think we'll start to see the U.S. mid-sized and smaller IPOs come out. The European IPO pipeline typically trails the U.S. by six to 12 months. Many of the European companies that we are talking to are continuing to look toward the U.S. as a potential listing venue. But at the same time, we've got somebody like an Airtel Money looking to do an IPO in Europe. Selectively, tech IPOs in Europe. You'll see more in the U.S. next year. I think 2028 is the year we're most bullish about for a return of the European IPO tech pipeline.
When it comes to European IPOs, 2028. A tendency for these companies to think about, and founders to think about doing what Stripe is doing — staying private for longer, and they can access capital and can continue to build and they can generate profits. Is that a model more founders are looking to, or are they laser-focused on getting that IPO?
Most are laser-focused on growing, and that's the most important thing. And going IPO because that's your focus. And talking about that, what you hear people talking about is what is the best way to raise capital, the fastest and the cheapest for my company and for my investors. And so what you're seeing is with the frontier labs is they haven't exhausted the private capital raised, and you talked about one earlier this morning. But you need to have in your quiver every single arrow there is available to raise capital over time. So that can be private. That can be public. That can be equity. That can be debt. And so I think as long as the private capital is available, available quickly, a lot of companies will access that because they can focus more operationally. Once they start to see they need that public capital, you'll see the company shift. So it's not really IPO or not IPO, it's when do I need that capital source?
Does the frontier lab IPO of $2 trillion — is that a catalyst for further IPOs, or does that cause indigestion for the markets?
The market can easily digest that with the scale of the equity markets. And the real question is how has that IPO performed? When investors make money in IPOs, they're more willing to buy more IPOs. If the IPOs are a bit more choppy, they might buy IPOs and want a much larger discount. And a founder or a pre-IPO investor — are you willing to accept that huge discount investors are saying? So I think IPOs performing well at any size opens up the market opportunity for more IPOs.
What advice are you giving to private equity firms sitting on assets they bought maybe seven or eight years ago that they are trying to shift off their balance sheets and need to get DPI and returns back to their shareholders, to their investors?
Be open-minded on what the deal type could be. You know, in the past, there was private equity to buy private equity assets. These days you need to have a much wider lens as far as who can be coming in. And we've seen continuation funds be a pathway of choice for a lot of them. But you're seeing buyers you didn't expect coming into the frame. We're seeing industrial companies buying software companies yet again. It was a big deal with Schneider last night buying a public company, but we're seeing them spend time. And a deal with Thoma Bravo for ATS — a deal where Thoma is taking an equity stake in a division of Nemetschek. Never a deal you would see a private equity firm do in the past. But being creative and thoughtful on what to do with their deals. Widen the aperture and be more creative, and in some cases you're going to have to take a markdown from what you have on your books. There is deal activity happening. The M&A market is very open. If you are willing to be creative and be flexible on value, we can get these deals done and they can start investing.
Do we start to unclog the private equity pipeline?
I think it's already happening.
Okay. How do you define how much of a conversation is the defensibility of these companies to the advancements that we're seeing in AI, particularly from the frontier labs, and how do you put a framework around that?
I think defensibility to the AI was the first half of this year, almost all we talked about. What was your moat and the system of record and all these typical jargon points they love. But going forward, it's now turning really to AI as an offensive characteristic. So how are you using AI to grow your business faster? How are you using AI to get customers to pay for your premium tier? How are you getting customers to retain at a higher rate? And so I think investors no longer want to hear about defense, they want to hear about offense. That's a big change we've seen in the last three or six months in the public markets, and it's the exact same, if not even more so, in the private market. So that's going to be the flavor of the day at the conference this week.
The shift in defense to offense when it comes to AI, and how to integrate that across your tech business. Matthew Gehl, co-head of international technology investment banking at J.P. Morgan. And Anna and Guy, back to you.
Tom, thanks very much. Tom Mackenzie at the J.P. Morgan tech stocks conference, and an interesting line on the IPOs still to come and the market can't absorb them. Tom will be back in the next hour bringing his conversation with Alex Kendall, the CEO of the autonomous driving company Wayve. And don't miss J.P. Morgan CEO Jamie Dimon in conversation with Tom. That's a bit later today, 2:00 PM London time.
And anything about the bond market, Ray Dalio says France has a borrowing problem.
Imagine you have — in Europe, and in large part of the United States, you have lived on the borrowing. And then when you reach your borrowing limit, as France has done, then there's a bind because you cannot continue to add to that. You have to start to run budget deficits because you almost get to the point where you have to pay back. In other words, if you borrow, you have to pay back. And when that happens, then you have a situation very similar to that. So now you see the desire for greater taxation. You see people leave. You see whether they're from France or whether parts of the United States, they leave. And then that creates a problem.
Wealth tax in the United States, the impact that would have on AI. Bridgewater Associates founder Ray Dalio speaking there. We're going to go to Paris next and more analysis on the French fiscal and political risks that continue to emerge. That's next. 41 minutes past the hour. This is Bloomberg.
Welcome back, everybody. 7:44 in London, and the picture in European futures right now. We are expecting a little bit of a bounce at the start of European trade. Probably tells you more about what happened in the United States later in the trading day than it does about European news flow. Not a huge amount of corporate news flow here on individual European stocks. But 7:44 in London. 8:44 in France then, Guy.
Hundreds of French high schools shut today, teachers' unions joining student-led protest movements demanding more money for education. The government warning in Paris that the unrest has turned into what it calls urban violence. Blame the far left. You're looking at live pictures coming to you from Paris. It doesn't look like it is violent at the moment. Certainly this is a demonstration in Paris. This is a school blockade, we understand. A blockade of a school. And in Paris, how widespread are these protests? And if you're in the bond market and you're watching this, is the message that it is going to be hard to cut spending in France?
Yes. It's very widespread. And it shows how divided the country is at the moment. You can see — you see students here, but high school students, university students. It's spreading to universities. You have farmers getting into it. You have mainstream national unions getting into it. So basically if you're looking at a budget that needs to be approved, like every — you know, you need to find a consensus or a working majority in parliament, at the moment it looks pretty — you know, pretty grim at the moment for the government. And if you're in the bond market, you're probably, you know, expecting it will get worse before it gets better.
Yeah. And there are a range of causes reflected on some of the placards you see in these protests. But for some — for some of the protesters this is about budget, and this is about requesting more money into education. So I suppose that's what links this to the budget conversations. Are there signs that the political class is listening to what's happening on the streets here?
Well, yeah. The Socialist Party, so center-left party, has called to demonstrate with the students today. The far left has been backing the protest as well from the students. You have more like traditional law and order from the right and the far right, calling for more, you know, severe repression of the people — of the people burning stuff. And in a nutshell. So it gives you a pretty much divided political class.
We're going to hear from Le Pen probably at around 10:00 AM Paris time, 9:00 AM here in London. What are we expected to hear from her? She's going to address a shadow cabinet, and she's also going to talk about long-term spending plans. How important of a moment is this?
Well, she — as you know, if you look at the polls, she's in a very good position at the moment. Much better than she was five years ago, four years ago. She — she looked even — polling, or the polls, or in a leading position, and wants to reassure markets that should she win in April or May, the country will not be in a crisis like Italy had or Greece had, and that she can keep spending under control. And that — basically, she's — it is not the case at the moment, because her plans, notably for pensions, are raising concerns on markets. So it's — there's a lot for her to reassure foreign investors.
Okay. Thank you very much. Thanks for joining us. Bloomberg's Julien Ponthus. The markets in three minutes on The Opening Trade. European dynamics — we're joined by our Markets Live executive editor Mark Cudmore. Let's start with European dynamics and watching the protests in the streets. And we're waiting for Le Pen to talk about her alternative budget later on today. I wonder what you make of the last 24 hours in European price action, whether that's the euro, the bond markets. And the euro looked like it was moving downward yesterday, calmed a little. The bond market story looks a little calmer. Just a pause in an otherwise downward direction.
I think it is a pause temporarily. French long-end yields are 20 basis points lower than they were only on Friday morning, only three sessions ago. That's in the 30-year period. I don't think we've seen the worst of the French stress until the budget is passed. Obviously, a lot depends what Marine Le Pen says later on today. But I think this is going to get worse before it gets better. And you can see that with the kind of domestic unrest. The fact is there's no easy way out here. And there's no appetite from any of the parties to take any of the hard medicine that's needed. So we know it's longer-term going to get worse. It's just the path there. Remember, shorting French bonds is very negative carry. So even if you know the next year is going to get much worse, you can't stay short French bonds and pick your moments. But the next couple of weeks, it can get worse. The euro — we have seen a slight recovery from yesterday morning's lows in Asia. But overall, the last few weeks have seen the euro downtrend, and we've got more euro downside to go on the crosses and against the dollar.
If you were long Brazil going into yesterday's session, would you sell today?
Completely depends on your time span. I think between now and the second-round vote on October 25, a lot of incentive for some short-term people to take profits. Because you have just seen in dollar terms the stock market rise 12.7% in a day. And that was after a rise already on the Friday. So you know, just — because we both had a stock market that gained 7.7% and a currency that gained 4.2% against the dollar. So quite extraordinary moves in Brazilian assets. But the fact is it's not just that Bolsonaro looks likely to win. Because the votes that didn't go to either him or Lula went to mostly right-wing candidates. It's also because Congress went more to the right than people expected, which is more favorable for him. So it looks very likely he'll win, and it looks like he will have a slightly easier situation than his father had before, although he may not be able to pass all the fiscal measures he wants. So a structurally good story, and people are underexposed to Brazil. Six months from now, Brazilian assets will be doing better. I do think short-term there's going to be some profit-taking ahead of the second round on October 25.
Mark, I know that you for some time have sensed that we might get lower yields. We haven't got them yet. What's your latest view?
Look, I have got Treasuries so wrong over the last six weeks, and it's really annoying me. As you know, for most of the prior five years, I'm just permanently bearish Treasuries. I think we've got much higher long-term yields, and structurally, yields should be going to that 6% handle. And we were due for a tactical Treasuries rally from a few weeks ago, and clearly I got that timing probably the most horribly wrong ever. You shouldn't ask my views on Treasuries anymore.
That's why we should ask you for your view on Treasuries. Mark, thank you very much indeed. Mark Cudmore, MLIV <GO>. Coverage well worth a look. Details of what is happening — let's start with Spain.
We're going to start with Spain with Sabadell. French banking group BPCE has taken a 7% stake in Sabadell, valued at over one billion euros or so. That makes them the second-largest shareholder, and they will have broad representation, but they pledged to keep that stake below 10%. They're calling this a friendly investment that will involve a lot of collaboration. Now, obviously Sabadell fought off a takeover attempt last year by BBVA, and since then the shares have been on a bit of a rocky ride, up over about 7% over the past year or so. They're trying to prove themselves as an individual, and they're saying that this new stake is going to strengthen that. So they're painting this as positive news, and we'll have to see how that's taken as markets open. Now, turning to Italy, we're looking at the pharmaceutical firm Recordati. M&A news: a raised takeover bid from the private equity house CVC for 10.5 billion euros. Now, for Recordati, the CVC bid in March — you can see that the shares kind of ticked higher on that news. They've come under some pressure to raise it. They have now raised it, so we'll see again how markets take that. Potentially some positive news with a higher valuation there. And finishing off in Copenhagen with Genmab and AbbVie, who have had some positive results for their combination for lymphoma. For Genmab, the latest in a streak of positive news. You can see the shares have been consistently rising higher since June or so. Some of that is related to other tie-ups with AbbVie, some with some other positive news. And you can see it being reflected in the analyst rating: 16 buys. Quite a clear streak there. And shares already trading higher.
Futures pointing higher and looking to catch up with the moves on Wall Street yesterday. Goldman Sachs strategist out with a note saying they're staying underweight Europe stocks as risks rise, and we do seem to be talking about a lot of risks this week, from France to Spain and elsewhere.
Spreads re-widening between —
France and Germany this morning. That's the story we want to focus on. The French finance minister said France is far from needing ECB help on debt. France is not in a situation — this is not market dislocation that we're seeing here right now. Five minutes to go, futures look like this. The market opens next. This is Bloomberg.
Tuesday morning. Good morning. How are you doing? A couple of minutes to go until we start equity trading — cash equity trading here in Europe. A little bit of catch-up, as Anna said, to factor in this morning. You've had Europe closed and the United States closed there — close there and the United States closed there — and tech did well in the States. We pushed up to fresh records, but a price into Europe. That is why futures look like this. They will appear as if by magic and they will tell you that we're seeing a positive picture. 0.7% on the Euro Stoxx 50. FTSE up by 0.6%. DAX futures are up by 0.7%. It will be a positive start. Bond markets are calm this morning and also a factor to fold into what you are seeing this morning. Which stocks are we watching? Anna has the details there.
Dive into a few stock specifics. And cross-border M&A with the banking sector. 7% stake in Sabadell. This is BPCE's CEO — he already bought a bank in Portugal, and now he's exploring business cooperation opportunities in this friendly acquisition of 7% of Sabadell. So we continue to watch that and see if it gains any momentum. In the pharmaceutical space, we're watching CVC as it boosts its offer for Recordati to 10.5 billion euros after it got protests from minority shareholders who wanted a higher price, so that's what they got. And at the top of that list you can see Genmab in the biotech space, and they've had some positive news surrounding a lymphoma result. And that has the market talking about this share price going higher at the start of trade.
Here comes the market open. We're expecting it to be positive. You're going to see four, five, six, 0.7% to the upside. That is what futures are pointing to. Are we actually going to get it? FTSE out of the green. How much higher can we go? FTSE starts climbing. Expecting 0.6% out of the U.K. market. France going to be interesting as ever. Still stress in the bond market. Significant stress. France is an underperformer this morning. The CAC session there. 0.7% to the upside. Looks like it is largely playing out as we were anticipating. 0.5% to the upside. Looks like the number we're going to be looking at. Maybe just a little bit less. We played our catch-up. We are back where we closed out in the United States yesterday. Where we go from here is the interesting question.
It is. Up 0.4% on the Stoxx 600. If I tell you healthcare is the best performing sector, that maybe tells you something about what is driving things here. We talked about a number of pharma companies and biotech in the stocks to watch. There is some news flow surrounding some in that sector. Maybe that's the driver. Perishable consumers, grocery stores the second best performing sector. Banks third best. A bit of M&A in that sector. Sabadell up on the back of BPCE taking a small stake there. Energy, given that we have a 10% drop in the oil price this morning, maybe that makes some sense. We have the likes of BP and Total. Gas prices are higher this morning. It is not the case for all energy. All the energy complex is shifting this morning.
