Newsmakers and market movers, this is "The Pulse with Francine Lacqua." Good morning and welcome. I'm Francine Lacqua in London. The S&P 500 climbing to its first record close since August on growing bets that corporate America can weather higher energy costs and interest rates. Let's bring you up to speed with what markets are watching with Charlie Wells. AI once again boosting sentiment.
Once again, because the market really has been focusing on this AI story for a long time now. Take a look at that trajectory. The market knows about this AI story. The market knows about that conflict stemming from Iran and the geopolitical tensions continuing, but look at this march upward. The market knows the story but continuing to buy that AI narrative that this new technology will not just stay in the tech space but sweep through the economy and have the ability to bolster companies in many different sectors. That story helping to propel the S&P 500 to that record yesterday.
Optimism ahead of oil earnings season despite oil and bond yields rising.
Bloomberg Intelligence estimating third-quarter earnings, a week away, will be up some 25% from the year before. This is optimism about tech, but we were also looking at the stock market and what we know about the U.S. It is in a K-shaped economy. On that upper end of the K, a lot of American consumers who own stocks. The stock market is hitting records; those consumers feel like they can buy products from these S&P 500 companies, and that propels earnings. There are not a lot of other huge economic data prints coming between now and next week.
Markets appearing to shrug off the hundreds of billions of dollars raised to fund the AI buildout, and SpaceX is the latest to be looking to borrow big.
Ray Dalio talking about concerns about this borrowing, but SpaceX is looking to raise some $40 billion in order to invest in some of these NVIDIA chips for the AI buildout. This would be one of the largest debt deals in the AI buildout, and there's a lot of investor demand. But don't get lost in the AI story. That is what J.P. Morgan indicated with a deeply distressed leveraged loan side of the market. The riskier side of the credit market getting to the highest value since March 2020. A lot of these tech companies that borrowed years ago, their debt is coming up to maturity, and they have a difficult time because tech is not AI. AI is a part of tech. Focusing on some of these tech names where some risk is mounting.
Charlie Wells with some of the biggest stories. Jamie Dimon, JPMorgan chief executive, issued a fresh warning on government debt and says rates are going up.
You cannot borrow endlessly and spend endlessly. It has been going on for a long time. If you look at the buildup of debt around the world, Europe is tapped out, but America has gone from 50% to 100% of GDP. We cannot be complacent. The lesson is there will be a point where the market will ask for more and more.
That was Jamie Dimon speaking to Tom Mackenzie. Ireland's government is increasing spending to ease some of the rising economic pressures on its population. In a budget yesterday, Dublin announced plans to cut levies on domestic fuels and extend a temporary reduction in duties on motor fuel. Ireland is one of the few countries in Europe with a fiscal surplus, something largely built on corporation tax revenues. To discuss the outlook, we are joined by the chief executive of the Bank of Ireland. Thank you for joining us. Give us your sense of what you are seeing in the economy. Are mortgages okay, and are you pleased overall?
Good morning, Francine. Yesterday's Irish government budget is clearly very important to our bank. We are coming to the end of our first year of our new strategy. That is all about supporting the Irish economy. We see that coming through in strong growth, strong growth in lending, deposit growth, and wealth assets under management also growing. The budget yesterday firmly underpins that. We are seeing domestic growth of 3%. You pointed to the fiscal position. Ireland's position is very strong. Budget surplus of 9.5 billion next year, 5.6%, that supports capital investment and growth. We are seeing that coming through with our own business customers. The lending book and the business banking book grew by 14% in the first half of the year. That is a strong sense of where sentiment is at. Business in Ireland is willing to invest.
What is the bank's outlook for the next year for the Irish economy?
Again, that outlook to 2028 is part of our strategy that we communicated earlier this year. It underpins a domestic growth of between 2% to 3% on average. If we look at some of the fundamentals behind that, yes, the fiscal position, but there are also very strong structural elements to the economy that are supporting growth. The government's National Development Plan to invest 275 billion over the next 10 years is a 40% increase on prior capital plans. Next year, spending 20 billion. Also, elements like the demand for new homes will drive the economy. And in a broader sense, we have a growing economy, a growing population in particular. 33% of our population are under 25. That is very important in the context of driving growth. It is a combination of demographics but also a strong investment profile that will support the economy. The Bank of Ireland supports that growth as well.
Yesterday in the budget, the finance minister extended the bank levy. I think you have called this bank levy in the past discriminatory. What is your response now that it is staying?
Our view is the bank levy that was introduced as part of the global financial crisis has served its purpose. I believe it should be removed. Of course, that is a decision for government and not for me. Our position is clear, and we know there was no change in yesterday's announcement.
The Irish government's new savings accounts are due to be up and running in the middle of next year. Do you think this scheme will help increase capital market participation?
I think it will. It is a very important element. The Bank of Ireland is very supportive of it. Part of our strategy to drive growth in our home market, one of the strong pillars of that is our wealth franchise. We have two very strong businesses. New Ireland is a life and protection business, and Davy, Ireland's high-net-worth business. We want to step more into the retail investment space, the mass market. That is important for a couple of reasons. One, it is about ensuring our customers are protecting their long-term financial resilience and stability. That is hugely important. It also makes very good commercial sense. I think in the short term it is likely to have a modest impact, but as we think about the longer term, about getting the capital markets more open to more people, from the Bank of Ireland perspective, it is a very important development, and we are very supportive of it.
When do you expect, and how quickly do you expect them to open up a lot more?
We're ready to go, whatever timeline the government would like. It looks like it will be introduced from the middle of next year, and we are working on the platform now. Our objective is to make this easy for our customers to adopt, to select an investment that works for them. We are ready to go, but it looks like it will come to the market in the middle of next year.
Yeah, and then maybe it takes more time for people to get used to it and invest a lot more. Talk to me a little bit about the risks of AI. We are talking about that a lot, what it means for the security of the banking system. How seriously do you take this threat, and what can you do to mitigate some of the concerns?
Yeah, AI clearly is a topic that is getting many headlines appropriately, both in the context of the opportunity and the risk that it presents. I spent three days in San Francisco last week. I met some of the very large players, but also some of the smaller firms that are bringing AI to the market. That is a very exciting frontier, but it does come with risks that need to be carefully managed. Managed by banks like Bank of Ireland in the context of how we protect against cyber risk, but also managed on a national level and the global level as well. I think we can manage those risks if we work well together. But the opportunity is huge. I think it will transform banking both in terms of the products we offer and how we run our business. It is an exciting development. Lots of opportunity, but the risks need to be carefully managed. Also, Ireland has got a strong track record of attracting foreign direct investment into Ireland. Offering access is an opportunity for Ireland to step into the AI innovation space to be a center of excellence. Part of that is working out the risks as well.
What does that look like concretely in terms of, I don't know whether it is research and spending or just cybersecurity?
I think the most important thing we can do in the very near term, and we are actively working on this, not just within Bank of Ireland but in collaboration with other banks across the eurozone and our regulators, is making sure that we protect our technology footprint so that we minimize the ability for a cyber threat. There will always be a cyber threat that existed before AI, and it is there now. AI makes it more, pushes up the risk curve, but part of what we are doing is most certainly to invest in our systems to ensure that that footprint is maintained and kept safe, that the perimeter is kept safe, that we respond, we prioritize our investment in protecting our systems. As well as that, we are also investing in our capability. AI is described as a tech play. It is also very much about people and how we work. Investing in that part of this frontier development is also very important.
Myles O'Grady, thank you for joining us, the chief executive of Bank of Ireland. Coming up, we will hear from the IMF managing director as she warns the world is facing what she calls a risk cocktail. That is coming up next, and this is Bloomberg.
The conversations that matter, the insights you need. This is "The Pulse." The European Union is preparing so-called safeguard measures that would actually limit the imports of Chinese hybrid vehicles into the bloc in a bid to improve the trade relationship. Jamie Dimon, chief executive of JPMorgan Chase, says cybersecurity remains his biggest concern with AI. He also weighed in on the investment needed to fund the AI buildout.
Data centers, you build them where they want them. Half of them are in Texas and Virginia, and people don't want them there. You are not going to win; you get lawsuits. But there are a lot of states that will take it that have access to power. Of course, any company would have to be a good community citizen. I think a lot of these people are going into town, they're being part of the community, helping the community get the rights, they make commitments that will not raise consumer electricity costs. It's just things like that, and that will be worked through. AI has positive effects. I do think it will cure a lot of diseases. It will save accidents on the roads, and it will create composite materials. It will make life unbelievable for people. The downside is obviously what you read about with the agents and mythos and all these things. That is a legitimate concern. It is a real thing. I am not going to get hysterical over, is it existential or not? What we are doing is rolling up our sleeves and going to work to fix it. So, the banks have always had a system in place where we help each other. We also started this thing called the Alliance for Critical Infrastructure. It started with 50 companies. It is starting in the U.S., it is across six industries: tech, financial services, water, transport. These are industries that government points out are lifeline. But eventually, it should probably expand to healthcare, pharma, agriculture. Every industry is kind of critical, and we need to help the smaller companies too, because they have different vendors and different needs. So it's a lot of work. We simply have to do it. AI created vulnerabilities that we did not know about, and we were always worried about cyber before these things.
You have thought about cyber risk for a long time. I know that.
It is your biggest risk. Does AI make cyber systemic risks more likely?
Oh yeah. That's what I'm saying. Mythos, whatever you thought it was before, I said cyber is our biggest risk. They did not publish Mythos yet. I would say it went up tenfold after Mythos.
Jamie Dimon, JPMorgan chief executive, speaking to Tom Mackenzie. The IMF says governments must act urgently to address challenges from an unbalanced AI boom, a prolonged energy shock, and record debt piles. The comments ahead of the annual IMF World Bank meetings in Bangkok. Let's get more with Haslinda Amin, who is joined by a special guest.
You talked about IMF chief Kristalina Georgieva sounding the warning, sounding a note of caution. Let's break it down. She is with me here. Good to have you with us. You said governments need to take urgent action. Which governments? Which countries in particular need to act now?
The most important group of countries, because of their systemic significance, are advanced economies. What we have seen over the last years since COVID is advanced economies are hit by a shock, they rush to the rescue of their people and their businesses. On its own, this is a noble objective. But shock after shock after shock, deficits have been going up. Shock pushing inflation up and interest rates up, making the debt service much more expensive. In this environment, delay no more. Governments where debt levels are very high and debt service costs are very high as well, where deficits have gone out of the safe zone they should be, they need to act with no delay.
These are countries that include the likes of the U.S., Japan.
France, Italy. Germany is one happy exception because of a long history of fiscal discipline. There are some other countries like those that have been hit by the eurozone crisis, Portugal, Ireland, Greece, where we see much tighter spending, lower levels of debt, lower levels of deficit. But even these countries, and by the way, the whole universe of emerging markets that have worked very hard to bring their spreads down, to bring the cost of servicing debt down, they now see the base going up. And that is a spillover from the fact that advanced economies have gone too loose.
Whose responsibility is it when it comes to the U.S.? Is it Warsh, Bessent, President Trump?
We have heard from Secretary Bessent on this issue of debt and deficit, encouraging statements. He recognizes that the deficit needs to go down to 3% over time. He recognizes that the level of debt is high and debt service cost is high, and that is in his responsibility, of course, bringing others on board. When we talk about Governor Warsh, he has his job very clearly defined: price stability. And I want to praise him for taking that quite seriously. He sent a very clear signal that price stability is a priority for the Fed, and the Fed will pursue it, not only with words but also with actions. What is really difficult is to get the public to accept that there has to be some tightening. And why is that so? Well, comes COVID, governments spent. Comes the war in Ukraine, governments spent. Comes now the war in the Middle East, the governments have pressure from the public: do something for me. I think it is time to recognize that this stairwell that has been stepped up and up and up does not lead to heaven.
Do you think developed markets are acting like emerging markets fiscally? It looks that way.
There is a little bit of this. It used to be an emerging market problem. Emerging markets over the last decade have tightened their fiscal positions quite strong. And now, they see the spreads they shrank still staying relatively tight, but the base is going up. And I think the emerging markets are still a bit more vulnerable because their ability to handle that kind of pressure, of course, is not unlimited. So, advanced economies need to take responsibility for themselves, but also for the rest of the world. So, please do your job.
At the last press conference, you talked about how the bond market is acting normally. Is it now?
You know, step back. We have seen these kinds of jumps in yields in the past, and actually some much higher than today.
It is also the pace of the jump.
Yes. What you need to look into is why is this happening? It is happening because of fundamentals. When you're in a situation of inflation going up and staying high, and then interest rates needing to tighten, and then on the other, governments with huge amounts of debt, they need to refinance, and then comes the new kid on the block, AI. That puts pressure, and this is why yields have gone up. It is a response to fundamentals. And in that sense, we also do not see any... it is more expensive to borrow, but you can borrow. The money is there. Where our attention is is not the fundamentals as they were defined in the past, it is the actions today and the signals for the future.
You have always considered yourself an optimistic person. Are you less optimistic versus a year ago in 20 seconds?
Not at all. I think the world economy has held well despite the multiple shocks. And we have a new driver of growth that has lifted up a number of economies, and that is AI.
Thank you so much for your time. Back to you.
Haslinda, great job as always, and thanks to the IMF managing director. Coming up, bracing for the budget. We will discuss what the finance industry wants with the chief executive of TheCityUK, a focus on the U.K. and U.K. financial services. That is next, and this is Bloomberg.
Good morning and welcome to "The Pulse." These are your top stories. Another record rally on Wall Street pushing the S&P 500 and Nasdaq to all-time highs. SpaceX in talks to borrow $40 billion to buy NVIDIA chips. Iran increases ship attacks in the Strait of Hormuz, with oil flows approaching pre-war levels. What the shocks mean for U.S. midterms. Apollo looking to play a bigger role. President Jim Seltzer says governments increasingly see private capital as part of the solution to mounting debts. Apollo exploring ways government-backed vehicles can raise long-term capital. We spoke exclusively with Seltzer about opportunities in Europe and funding out the AI buildout.
