Newsmakers and market movers. This is "The Pulse with Francine Lacqua." Good morning, welcome. I'm Francine Lacqua in London. Traders are avoiding risk heading into the weekend, Brent touching $100 a barrel. U.S. tech stocks tumbled yesterday. We have new tariffs from the White House. I'm joined by the chief FX and emerging-market strategist at Goldman Sachs, our leader of global trade coverage, and Bloomberg's tech editor. I'm glad we can bring you all together to figure something out. Are you hearing more about AI, trade, or the Middle East?
Goldman Sachs Strategist
1:02 ↗
I would say different horizons. On the trade side, this is a replacement of tariffs that are about to expire. Some of the range, I don't think it will be a first-order market mover. In the short term, the Middle East, the energy price moves are important. I think markets have been reluctant to price in what's coming along to the side that I think you need to start taking this a bit more seriously now. I think the bigger picture, the main risk that will affect markets in the long term is what is going on in the tech sector and AI. I think AI investment has been a big driver.
Overall, what did we learn this week? There's a lot of spend out there, a lot of bonds or debt that will be issued to make up for it. There's nothing concerning, but it is one of those weird weeks where markets are taking pause.
For sure. Tesla, Google this week, the capital expenditure is going up and up. That is causing some concerns. For Google, you would expect an alarming sign was the first quarter, possibly since the IPO, we have seen negative cash flow for the company. Tesla, the first negative cash flow in a couple of years because the AI expenditure is so big. Not seeing a ton of returns on that expenditure just yet. No signs in the foreseeable future that it might come. We have some early signals that maybe AI earnings are catching up to that expenditure, but the sheer volume needed to be spent means we will not see a return for a while.
We also spent a lot of time thinking about — it is not hacking, but the fact some of these models are dangerous because they can also go into other models without knowing. Do we know any more about how we can fix it and what exactly happened with Hugging Face?
A little bit. There's a degree of human error here, which is simply not understanding the guardrails that need to be around such models. In this case, this was OpenAI testing a couple of its advanced models, putting it in a sandbox, a protected environment. But the model was quite clever. It was given a test and said, "I will solve this test any way I can." There clearly was not enough instruction, perhaps intentionally, to stop the model from trying to do anything to break out of the sandbox. It goes to show that sometimes these models can be extremely determined if you don't cleverly think around how they might break out of the sandbox or protected environment. It is a little scary. I think it is not the end of the world. It goes to show these models need really careful thought before they are released into the wild.
We thought tariffs were a risk of the past, didn't we? We started the week with a bit of skirmishes from the U.S. and Canada, but President Trump is rebuilding these tariffs.
As Jamieson Greer said to Congress this week, the authorities are changing, but the overall strategy is it. At the core of the strategy are tariffs. They are basically going down two tracks. One of them is this more procedural path with a 301 investigation like the one we saw take effect today into forced labor. There's another one coming on excess capacity, could be August or September, with additional tariffs on a lot of major U.S. trading partners. There's this other path we saw emerge this week with Canada, this new authority that has not been used in almost a century, this 338 authority that the president threatened against Canada with 50% tariffs that will take effect in 30 days. So we have this predictable path with the 301s, and this new untested authority the president may be using against Canada and perhaps other countries to shake things up, to drive negotiations. So a lot of the uncertainty is in the past, but we have some new questions about how much authority the president has to wield tariffs on trading partners.
I imagine it is inflationary in the short term. On inflation, we may be worried about it less than a couple of months ago. Or do you put it in geopolitics?
Goldman Sachs Strategist
5:23 ↗
I think there is an inflation impact, but the level of tariffs is replacing the tariff level that was due to expire at the end of this month. I think from an additional inflation impulse, it probably will not be the game changer unless you go down this 50% tariffs route, which will be questioned and challenged. I am less worried about the inflationary impulse from tariffs. I am less worried about the inflationary impulse coming out of the energy complex right now. That is the one we need to watch for.
Is that oil or the capex spending we are seeing?
Goldman Sachs Strategist
6:00 ↗
Both. I think the energy and oil is the short-term swing factor that drives this up and down. But I feel like you've heard from the FOMC, this limited tolerance for overshoots no matter what the source is. Again, the longer-term, bigger factor is the AI capex spend. I think shifting views there will be a key driver of the cross-market response.
Do we know whether — we heard that the Singapore foreign minister is pushing back. The biggest danger is if some of these countries retaliate.
Exactly. We've heard from a number of countries that are not happy with it, but most of them are taking it on the chin. The European Union says it falls within the deal that was struck between Brussels and Washington. It almost went unnoticed yesterday that the U.S. trade representative went after the European Union for the fine they levied against Google and this loan to Airbus. These are long-running issues: their overregulation, according to the U.S., of American big tech companies, and the long-running Airbus/Boeing dispute over subsidies have come to the fore there to perhaps shake up the transatlantic relationship.
It is pretty incredible when you look at these figures. Alphabet's future spending commitments, $11 billion. I wonder what kind of impact this has on inflation. I don't know if anything happens with interest rates will stop that. There are a couple of other stories like Microsoft replacing OpenAI images. Is there interest in how AI is going to change quickly?
I think there will be. And the big story this week has been the rise of the Chinese models. It is periodically a story every few months because a new model comes up and everyone gets alarmed. China is certainly willing to fund the development of the training of these models and issue them out into the world at very low cost. Increasingly, businesses are beginning to notice. Small startups who have a limited runway are saying, "I can't afford to spend my tokens on Claude, which is expensive. I will go to DeepSeek or one of the cheap open Chinese models." That is one of the other models that will have an impact on spend. Some of these companies rely on making a return to charge customers for their models, but the Chinese competition may undercut them.
Something we need to keep a close eye on. Shona and Brendan, thank you for staying with us. Oil is holding around $100 a barrel after President Trump threatened to increase tariffs on Iran and hold it responsible for attacks from Yemen. For more, let's bring in Bloomberg's managing editor for the Middle East and North Africa. Is there any prospect of de-escalation at this point?
There are certainly efforts underway to de-escalate. According to The New York Times, there was a truce proposal that was relayed to the Iranians by the Iraqi prime minister on Thursday, but that was flatly rejected. We are also seeing, according to headlines, Iran's foreign minister meeting with his counterparts from China and Russia later today. The differences between the two sides, especially over the issue of Hormuz and who controls it and how, remain wide for there to be an imminent breakthrough, judging by the narrative coming out of D.C. and Tehran so far.
Thank you so much, Onur. Let's get back to the chief FX and emerging-market strategist at Goldman Sachs. We talked a little bit about the inflation forecast and the fact this war seems to be going nowhere. We don't really see a de-escalation point. So has it changed your outlook for both dollar, oil, and inflation?
What is interesting is in this particular re-escalation, the dollar impact was somewhat more muted at the start of the re-escalation. Even though the headlines in some sense seem to be worse — you have two straits blocked instead of one — you are starting from a point of much lower inventories in the global energy market than you did before. I think part of the reason why the response has been more muted is people are expecting some sort of de-escalation, and partly the impact from the terms of trade of the first part of the war has not completely dissipated. There has been a reluctance to commit with this energy price increase in a way of dollars, cross-currency, and inflation markets. I think it is changing. We were beginning to see the levels of increases in gas prices in Europe and oil prices that I think the dollar is beginning to acquire some degree of front-foot nature and appreciate a bit. You are seeing those terms-of-trade distinctions start to play out versus the oil exporters and importers.
Yesterday we had the ECB, and here is President Lagarde on the price of oil.
The energy shock continues to feed into higher prices. It is becoming more expensive for firms to source inputs, and they therefore expect to put up their selling prices. While developments in underlying inflation have remained contained, the full effect of the energy shock has yet to play out.
I wanted to ask you about emerging markets, but also about the U.K. — a small economy that is impacted by the price of oil, with energy impact and a new prime minister.
I think the surprising thing for a lot of people, and for us, is that at the start of this month, the pound was one of the best-performing currencies. That is in the short term. If you look in the medium term, there has been a lot of downbeat sentiment around U.K. assets. The currency is one of the most overvalued currencies in our metrics across the G10. We expect some degree of pound bearishness or some depreciation creeping in as you unwind some of that optimism, partly on the back of some well-owned pound positions.
Why are you so optimistic? What do you expect from the prime minister?
You had an unwind in positioning and inflows. Carry has been a big theme in emerging markets, and the U.K. and the pound offers one of the highest carries in G10. Ultimately, it is a pro-cyclical currency. It has gone a little too far. It is early days with the new prime minister. We will see. If you are bullish on the U.K., there are other, better assets to express that rather than the currency itself right here, right now.
We are day five. Are you hearing the right noise? Can they please the bond market and make this a fair society where citizens feel they aren't left out?
It's a really tough question. I don't envy the shoes he is in and the trade-offs they have to make. It goes to the discussion we were just having. They can try to do a little bit to help people. Ultimately, what bond markets care about is if you are going to have a cost-of-living crisis, what happens with the energy price shock is a bigger one. That is what bond markets are about. We have not been very lucky with global supply shocks in the last few years.
Emerging markets have had an overall good run. The last three months have been extremely difficult. What do you see for Japan and Southeast Asia?
A lot of these are big energy importers, and the energy shock won't help. The other theme playing across a lot of the countries is carry and real yield. Places that have a decent real yield cushion are holding on okay, even in the face of supply shocks and volatility in equity markets. Japan does not have a big yield buffer. It is a low-yielding currency. That's where we are more cautious there, and that is true of Southeast Asian low-yielding economies as well. We think it should be on the short side of global carry trades.
15 minutes looking at the forces at play, the risks out there. At the end of the day, what is the best value play in the market now?
Near term, a lot depends on what happens with the energy side of things. If the energy side of things comes off — and we have seen a few episodes of this — what's priced into the curve will be tough to sustain. That's probably the clearest value play. Medium term, I go back to shifting views on AI and that spend and the value proposition there. I think it will be key to driving markets in the second half of the year.
Thank you so much, the chief FX and emerging-market strategist at Goldman Sachs. Coming up, the impact of President Trump's new brand of tariffs. This is Bloomberg.
For conversations that matter and the insights you need. President Trump has new levies on 60 economies. Just after 5:00 a.m. London time this morning, U.S. tariffs crept in 10% to 12% on most of America's major trading partners, following allegations of those economies failing to prevent forced labor in their supply chains. Rebecca, thank you for joining us. When you look at exactly what happened, what is the reason for this to be back on the agenda? We knew President Trump would never let it go. Did you expect for it to come back so soon?
It was inevitably going to happen today. The previous stay of execution — it was definitely going to happen today, that was obvious. The real concern here is that this is using parts of the law. It is investigations that have been going on a long time, using parts of U.S. trade and tariff law that is very technical. The challenge for everybody is this could get worse. It certainly has not gone away. America is using tariff policy as its major instrument to coerce the global economy. Everybody has to get used to managing through this type of uncertainty because there will be disputes, arguments, and conflict, and this is something Americans are preparing for.
Are these a set of earlier duties that were struck down?
They cover around 99% of U.S. imports. It is covering a huge amount. They are doing something different — asking for every single trading bloc, every single nation to look at their supply chain rules and regulations and enforcement regulations. It's very, very technical. Asking every single nation to look and see where they can tighten their law in order to accommodate the rule that in no supply chain must there be exposure to enforced labor. There is already corporate law and corporate regulations and reporting standards around all this. The U.K. relies on those sorts of things, and it does not have trade law as such that says we cannot import goods exposed to enforced labor. The European Union does. This is where the gray area will be, as the U.K. government will rightly say this is accounted for by corporate law.
Countries from India to Norway have pushed back against the allegations. Inflation could go up. I find it quite risky with four months until the midterms. You look at the focus for the Democrats in the U.S., the cost-of-living crisis. Wouldn't this not automatically make it worse?
The jury is out on the effect this is having on the American economy at the moment. The prices on inflation at the moment for the U.S. economy are very significant. The U.S. administration's trade policy at the moment is not loved by the American public. The problem, as we get closer to the midterms, will always be the fact President Trump does not seem to have reduced prices in the way he said he was going to. He said this is a price worth paying, and he does not worry necessarily about the impact on the economy. He believes the whole point around making America great again and America first in everything he is doing at the moment will actually be sufficient to carry him through midterm elections.
Also complicating things is currently we understand there are refunds from U.S. Customs and Border Protection from the previous, of course, trade agreements that were sort of struck down. Rebecca, what is your feeling? Will other countries be fed up with this and retaliate? If there is one thing I remember from 2025, it is we were surprised the rest of the world took it on their chin and moved on.
I think this is slightly different because it is accusing — so the 301 tariffs and review are accusing other countries of being unfair. The European Union says we are not being unfair; we stood by the terms of the agreement. The European Union does have a huge anti-coercion instrument it can introduce in return for these types of tariffs, and it has never triggered that button, but it could. There are different mechanisms by which this could happen. For example, pharmaceutical tariffs on generic pharmaceuticals will hit in two years' time. But it will affect the way in which countries think about investing in the United States. It will particularly severely hit India. India produces so much of American generic pharmaceuticals. There will be points where I think the rest of the world turns around and goes, "Actually, this is not fair anymore on us." There is a risk other countries will retaliate. The one country that could have caused this is China.
Rebecca Harding, chief executive of the Centre for Economic Security. Coming up, how much of a threat do AI agents pose to private communication? We discuss with Meredith Whittaker of the Signal Foundation. Next on Bloomberg.
Good morning and welcome. I'm Francine Lacqua. President Trump rebuilt his tariff wall that was struck down by the U.S. Supreme Court with new levies on 60 economies, including most major trading partners. Traders fear the AI rally may have gone too far, with the Magnificent Seven shedding nearly $800 billion in market value in one session. Brent touches $100 a barrel with President Trump considering a massive attack on Iran to encourage negotiations. AI security has come back into global focus after Bloomberg learned OpenAI's advanced models attacked Hugging Face in a matter of hours. My next guest is warning the rise of AI alongside further tech legislation risks undermining the principles of private communication. Meredith Whittaker is president of a nonprofit organization that owns Signal Messenger. The app has been downloaded or installed hundreds of millions of times. Great to speak with you today. There's a number of questions about what we should worry about most, but can you break down the potential security risks posed by AI agents?
For Signal, it is a very concrete security risk, which is we are seeing these agents integrated into our core infrastructure, like our operating systems. You see these updates, agentic capabilities. Great, it can live my life for me. In order to live my life and to know about me, it needs to have access to data. What we are seeing is agents that, under the guise of being our magic genie, butler, helpers, are demanding huge amounts of access and permissions to do whatever they want with that data — my credit card information, my calendar information, my contact list to book a dinner for my friends. All of that being sent to external servers, processed in ways that may not be secure. And Signal sees this as a threat on our ability and every software developer's ability to really ensure privacy within these environments. So we see potential in these technologies, as does everyone, but we are seeing them architected and pushed into the markets in ways we consider to be extremely reckless.
