It is Columbus Day, volumes are light, bond markets are closed. 30 minutes until the start of the trade. I am Dani Burger. "Bloomberg: Open Interest" starts right now.
Oil edges higher as the market faces earnings season and a packed week of data. On the tech front, the Broadcom CEO compares AI investors to casino gamblers. Some of the stocks we are watching: memory stocks having a rough go of it. SanDisk, SK Hynix, all of them trading lower. There was a report that a Chinese rival progressed on the new chip architecture. That is a problem for all of them, and volumes are light. Higher oil prices and questions around tech valuations are also pushing investors more defensively.
Let's get more into that. Oil prices are swinging as Saudi Arabia faces new attacks. President Trump says Russia and Ukraine have agreed to an energy cease-fire. Ukrainian President Volodymyr Zelenskyy says Russia has already broken the cease-fire.
The energy cease-fire can become a major step towards ending the war if the Americans truly step in and make sure Russians respect the energy cease-fire.
Let's bring in the oil reporter, Charles. We have the two conflicts adding to the oil gains. Let's head to Russia, where we had the president announcing Russia would be able to put more diesel onto the market. There is skepticism whether an energy cease-fire will be taking place. What is the dynamic you are looking at?
There is definitely skepticism around both of those points, both a cease-fire as well as whether those possible Russian diesel barrels being launched onto the market could have an impact at all. We did see prices taking a bit of a breather, but now they are backed up after President Zelenskyy has made clear, following Russian strikes on energy assets in Ukraine over the weekend, there does not seem to be much of a cease-fire the U.S. president had claimed. The U.S. president would love to see a way out of that. It seems like the levers are pretty limited.
On the other conflict, the concerns about escalation, oil markets are up 2%. Brent doing something similar. These are notable gains but not huge gains, when you might expect if there were fears of wider escalation. What do you make of that?
We have been here before and it has been a similar story where we have been pricing in this premium. If we talked a few weeks ago in mid-September, there was a lot of optimism and has been a lot of optimism around more and more flows. There has always been a question of if we have seen the flows hitting pre-war levels, why haven't we got below $100 a barrel for Brent? The answer is we see the risk premium. In the second front, we have seen that the Houthis had their deadliest attack in Saudi Arabia. We have seen ongoing attacks since. This is a dangerous environment and that is why traders are continuing to price towards the risk and have been. It is a fragile moment.
Thank you very much for joining us. Price of oil higher 2%. Earnings season unofficially kicks off tomorrow. The big banks will be leading the way. Bank of America and Morgan Stanley on Wednesday. Bloomberg's Wall Street correspondent joins us. Always an incredibly busy week. Will this be a quarter of another record, but just barely record, for these trading calls?
I look at it as more of a mixed bag. What we saw in the first half of the year is good news for one bank translated to good news for everyone, but we have had some structural changes into the second half through the third quarter. Look at the capital markets, look at concerns around the consumer economy. Every bank will have its own story to tell. You do not necessarily expect all of them to move in concert.
Which of the ones that have had the structural differences?
Let's talk about Goldman Sachs and Morgan Stanley. Their stocks were on a tear. They were the financial market beneficiary of the broad AI trade, of the big boom in capital markets activity. As you've seen slow down, we had the big SpaceX IPO in the first half. We were supposed to have the double-header of OpenAI and Anthropic in the second half. Now we are only expecting Anthropic. Last week we saw a Nvidia-backed company having to pull its IPO. There have been some jitters in capital markets, but not just the public equity markets. You've also seen digestion issues with the Paramount Warner Bros. debt that came to market. There is some concern the capital markets boom might not continue at that same pace and the prime beneficiaries of that might have to be on the back foot and will have some explaining to do. They might come out and say the pipeline looks phenomenal and as far as they are concerned things are going top-tier on every front, and because of the reaction of the stock price and earnings season, you could see a big lift, and that is the thing you will be following with that.
If you look at what is happening with the consumer economy, when you think of Bank of America, they had their own idiosyncratic issue. You will see the unrealized losses will go up, it will become a point of conversation. More than anything else, it will remind everyone of the lost opportunity cost. With Wells Fargo and JPMorgan, you want to see where they are talking about. Will they have to lift deposit costs? Is there enough loan growth in the right kind of loan yield? Is it the good loan growth and the right loan yield? Are we talking about loan growth because of consumers seeking loans, which is not high-quality? You will have to pay very close attention to what every bank is saying this quarter. That is what we probably see every quarter, but this quarter more so than ever before.
As you said, they are down 13% since August. Thank you so much. We'll have you on a lot this week. That is our chief Wall Street correspondent. Broadcom CEO is likening the AI trade to a casino and questioning the economics of money-losing AI labs. He says a lot of investors have no clue what they are investing in and said very extreme expectations always to find out they're in a casino. Mandeep Singh joins us. This follows wonderfully. Not only those comments, but it feels like there is pushback in markets, whether it be the Nvidia-linked AI player in Australia deciding not to IPO. Spreads starting to widen. The Broadcom CEO saying financing markets would be a bottleneck. Are our financing markets starting to be a bottleneck for AI?
The cost is starting to go up. It will have a bearing on the financing of these data centers. Token pricing coming down, cost of financing going up, all of these are negatives. You look at the big picture in terms of token growth, more agentic use cases, it feels like there is a lot of runway when it comes to deploying AI and there is more competition. You will pick what sort of projects will get financed going forward. Not everything that is linked to AI will find financing. Overall, the trends are intact when it comes to AI deployment.
M&A can still happen because Amazon is in talks to buy an AI startup. A billion dollars is the value. What do we know about this AI startup?
Everyone, especially on the application side, we know Amazon blocked off Muse. When it comes to agentic AI, all of these players have a lot of fear when it comes to what agents can do. Everyone swears by the functionality. When it comes to e-commerce, it is easy to see how Muse can change the course of e-commerce. Amazon needs to step up. Blocking an app is not the solution and that is what they are after here.
Let's get a check on our markets. Close to another set of record highs. It is a market without a lot of juice. We need to gain 0.4% for the S&P to get to a record, 1.3% for the Nasdaq. Both of those last Tuesday. Brent crude up 2% rather this morning with concerns in Russia and the Middle East. Finally, because bond markets are closed, the euro is still trading at a 2025 low. Let's look at other movers.
First up, it is a double downgrade for Adobe. Wells Fargo slashed the stock two notches. It sees meaningful cracks in the growth profile, lowering the price target to $225 a share. The stock has already plunged 30% this year. It is down nearly 4% today. We will move over to pharma. Bristol-Myers is trading higher. A late-stage trial using a lower dose of its lung disease drug met its goals and that could support a more convenient dosing option for patients while preserving the drug's effectiveness. Shares rallying about 3% today. We will end on a megadeal. IonQ buying a cybersecurity platform. It helps companies protect their network from AI-driven cyber threats. That will give the computer giant IonQ a much bigger foothold in cybersecurity. Shares down 1.8% so far today. Those are your morning movers.
We will catch up with you later in the hour. Coming up, more on that IonQ deal. We will speak with the CEO.
A look at what is making headlines around the world. HSBC is moving closer to a Wall Street-style pay model. The bank will phase out fixed pay allowances for senior staff and shift more compensation into performance-based bonuses. Its CEO continuing a broader restructuring push. More on that story later this hour. Robert Hall and Michael Woodford have won the 2026 Nobel Prize in Economics. Their research helped shape the economic model central banks use to respond to recessions and other major shocks. The economists will split a $1.2 million prize.
IonQ buying a cybersecurity company as companies race to protect their networks from AI-powered attacks and future quantum computers that could break today's encryption. For more on the deal, we are joined by the IonQ Chairman and CEO. This is a cybersecurity company that helps large companies and governments control who and what accesses their computer network. Why this deal and why now?
IonQ is the largest security company in the Western world. We have been investing in the last couple of years in post-quantum software. Elisity is a fantastic complement and strategic addition to our defense-in-depth strategy. It brings us a fantastic leader in James Warren Brenner, it brings us a fabulous cultural fit with our team. Culture eats strategy for breakfast. Best of all, it brings us 100 new customers and a channel for writing and carrying our products into the enterprise, as well as a number of government partners. On a combined basis, we are unequivocally the leading security company in the Western world. These technologies are important, not only for the quantum era, but you need things like Elisity's zero-trust strategy and our quantum distribution today to keep you safe from the threats of LLMs.
You bought a chipmaker, SkyWater, only two months ago. What is your plan to integrate two major acquisitions without execution risk?
We have been an expansive company since our IPO. We started in quantum computing as our core business. It was a roadmap for computers which we announced last month. It enables us to be vertically integrated and reduce cycle times from eight months to eight weeks. And in addition to that, we are also expanding our ability to supply the U.S. and our allies and accelerate them. I have conducted and closed about 57 acquisitions as a public company leader in my career. I feel like the pattern recognition is getting better for me as I age and get more experienced. At the same time, I feel like any mistakes that have been made decades ago in my career — integration is a core competence of IonQ and we are growing multiple facets of our business at the same time. That is what Elisity is about. We also have quantum networking and quantum sensing, and these are all complementary parts of our quantum platform where customers are buying more than one solution and it is fueling acceleration in our growth.
The logical question is what is next? Are there any other gaps you might want to add on to via acquisition?
We are always looking at how we can make 1+1 equal 3. We have demonstrated that in our computing business where we acquired Oxford Ionics. We have the most manufacturable quantum computing business in the world, but also the largest. Doing things in the real world is very much the focus of what our quantum strategy and quantum business is about. We have a huge R&D organization. We spend about $500 million a year on R&D. We believe quantum is spending money to make sure the future happens sooner, and we are also investing across the quantum platform to make sure we are bringing products to market in a robust way. You saw our partnership with Nvidia last month in the quantum computing sector as a validation of our investment, not only in quantum networking but also in SkyWater. Elisity will give us the ability to not only move faster and bring our products to market, but also brought in the customer base and give us a fantastic team that can integrate our product offerings and offer that defense-in-depth strategy to those government and enterprise on both sides of the Atlantic. No doubt, we see huge opportunities as we supply quantum technologies from submarines to satellites. We see opportunities in sensing. We see opportunities in bringing our quantum technologies to more customers on a global basis.
If I can jump in. Something that might be apt to throw in is the Intel CEO overnight, essentially in Asia, was speaking at a conference. He believes quantum computing will be mainstream in the next three to five years. Is that the timeline you are assuming and what needs to go right for that to be speeded up?
IonQ was the first quantum company in the world to seven figures of revenue, eight figures, nine figures. Guidance we just uplifted to $460 million of revenue this year. We have been roughly doubling revenue every year since the IPO. What is your definition of mainstream? I think we are already a substantial-sized organization. We grow effectively and we continue to show the planning horizon for quantum technologies is here.
What about profitability? You have the revenue, when does profitability come?
We are focused on growth. We have not given guidance on when we expect that to happen. I have seen great tech companies focus on building the ecosystem, building the revenue, and making sure customers are all enjoying part of the ecosystem. That is the goal at the moment. And in the longer term, all businesses will become profitable, but we think we will be able to scale substantially more because we have a very supportive shareholder base and our investors are seeing we are delivering the results. Year on year, we beat guidance, we beat financial expectations, and we beat expectations also when we've been doing that for five years.
I have 30 seconds and I hate to dump this on you with barely any time, but part of the acquisition is for the coming threat of Q-Day, the point when quantum computers become powerful enough to break encryption standards. When is Q-Day?
I was the first in the world to say Q-Day was coming sooner, and I said it would happen by the end of this administration in the lab and a year after that in scale. We are urging our customers to listen to the White House executive order of June 22 and start working with us now. This is a real and present threat, and getting ready for Q-Day helps protect against those LLM lab leaks that will only get worse as LLMs start to figure out the need to work with quantum computers to crack encryption in the short term and long term.
Thank you so much for your time. Great to have you on the heels of the acquisition. Coming up, the AI spending boom. Does it face reality checks? Katrina Dudley tells us what earners need to hear this earnings season. You are watching "Open Interest."
Five minutes until the opening bell as the S&P and Nasdaq go nowhere. Chip stocks and semis selloff getting dragged down by risk-off sentiment. Brent crude is higher 2% and the euro still at a 2025 low. Let's look at other movers. Chipotle, shares falling after Starbucks said it is not pursuing a takeover of the burrito chain. When that reporting came out, analysts were broadly skeptical. The Information reports the crypto miner turned AI service provider has entered a multiyear cloud deal with Anthropic. And Salesforce shares are higher. Bank of America raised its recommendation to buy from underperform. Analysts cite a positive tailwind from adoption of its software. Less than 10 minutes until the opening bell. We will begin the trading day with Katrina Dudley. That is up next. You are watching "Open Interest."
Let's get trading week started. Moments to go. This is "Bloomberg Open Interest." We just need to gain 0.4% for the S&P to hit a new high. We may struggle to get there, volumes are low with the Columbus Day holiday. Bond markets are closed. It is unfair that equity traders still have to show up. The Nasdaq is underperforming because of chipmakers. At the New York Stock Exchange, they are celebrating Columbus Day and Italian heritage. The Social Security administrator there, I guess he is Italian, some other well-known Italian figures. Kelly Conway? Sure, why not. Axon Computer marking their official transition to an AI infrastructure company. They were a biotech company doing research with AI. Hop on the bandwagon. These shares are down over the past five years, so clearly they needed to make a change. Up 63% year-to-date. Chip stocks are down across the board this morning. A Chinese rival could boost density. Tech valuations are also pushing traders to a more defensive stance.
It's a more muted market this morning. Let's bring in Franklin Templeton investment strategist Katrina Dudley. Wonderful to see you this morning. You have been writing about how much needs to be spent on AI, what we might get this earnings season, and whether there will be an ROI. We heard from the Broadcom CEO seeing a lot of this is happening without ROI. Is this earnings season different this time? Does anything change now?
There are two ROIs we have to be focused on. The first is that hyperscaler, almost $800 billion of capex. That capital is being deployed, we are looking at it almost akin to a real estate investor, looking at the credibility of the person backing that spending. We think there is good credibility there, funded from free cash flow. Those are now turning negative, so there is a need for debt funding. But I think the private credit markets and the bond markets have been very vigilant in terms of, before we make this loan, you have to demonstrate the value proposition. We are looking at our friends on the fixed income side to be really diligent in measuring that ROI. Let's move to the other side of ROI which has not been talked about, and I think it will be the narrative for the next six months, the companies spending on AI, what ROIs are they delivering. You are seeing a little bit of a mixed message if you look at software, banking, infrastructure. You start to see positive narratives. If you look at other parts of the market, they are saying, we have not seen the returns.
Aren't those in conflict? You can see this to the average cost that companies are spending on compute. It has gone way down from its peak, almost half. Companies realize I cannot spend as much and maybe you're not paying for Claude, you are using open-source. It is the cheaper inference startups coming in. Aren't those in conflict, hyperscalers doing well, and the rest of the universe trying to get cheap compute?
There is a paradox, when you drop the price of something, demand increases so much more, the total pie gets bigger. The total revenue pie as the pricing comes down could be bigger, but you are right, the ROI at the hyperscaler level even with those higher revenues will go down because they have a higher level of capex. As the cost of compute comes down, as people look at alternative models, more use cases will come into the fray. You have seen so many narratives about it. This escaping, AI getting out of the project sandbox. From that perspective, we are in a regulated industry. We have been really rigid in making sure we have affordability, traceability, tractability whenever we have deployed AI. I think that will move into the rest of the market.
This is the picture I have heard for agentic software companies. They say, you need something more contained, you don't want to be getting data to large language models, so maybe you would take on an agentic software company that has a contained ecosystem. You are using the site your company, you are very aware of the safety parameters. Do you think that could be something that helps software this time around?
At our level, we own the connected intelligence layer. That is where we bake in this traceability. For example, if you have agentic software sending emails, we need to know, is it an agent or a person sending emails? We only want people sending emails out to our clients, pressing the button and then having the distribution. We have been very focused on that within the Franklin Templeton infrastructure. We are a large company, we have the balance sheet and the ability to make these investments, this spending. For other parts, smaller companies, you may see an argument for someone having it do it for me, buying into those risk control mechanisms.
If I could shift topics for a moment. We are entering the official start of earnings season as big banks kick off. One of the trends, we heard from Delta already, and they downgraded their assumptions because of fuel prices. The notion is they can keep on passing along that cost. Do you think we will see that more, the price of diesel and energy becoming more of an issue?
If you look at credit card spending, because the banks are reporting first, it was up 1%, 2%. At the beginning of the year, there was a dull drum in spending, but it looks like the consumer is picking up. We are watching consumer delinquencies, so that is the other thing to worry about. If you start to see pressure on the consumer, I think we need to worry about the ability of companies to pass it on. Another number we are watching and comparing, and sometimes you have to do the compare and contrast, is what the University of Michigan expectations for inflation are. 4.6%. How does that compare with a lower number coming out of the Fed, which is a more demographically diverse number than the University of Michigan, which tends to skew to lower income. Lower-income spenders are concerned about prices, the cost of diesel. We will continue to focus on the lower income and making sure they continue to be robust. That is something we need to be paying attention to during earnings season.
You pointed this out, the mood is very bearish. Even as we trade near all-time highs, there is room to run.
If I look at what is driving the market, it is tech and energy companies, top-performing year-to-date. Interestingly, they are driving that positive narrative, but they are also creating some of that negative narrative. Energy prices are up significantly, diesel prices driving earnings of energy companies but also concerns on the market. Technology companies are the other area of concern. Yes, it is this dichotomy in the market, and that is what is showing up in that AI index being you have a large percentage of the market that is bearish. You also have a portion of the market that is bullish. At the moment, we continue to climb what we call the wall of worry. Everyone is talking about these negatives, people talk about oversupply, overspend, but from our perspective, I think the ROI narrative is the second leg of the story that will drive us through into 2027.
Tech, energy has done well. Beneath that, are you seeing pockets of bearishness that you think present a good opportunity?
I am not as much in the book to be avoid camp, but I look at healthcare. You mentioned someone was ringing the bell, a former biotech company turning into an AI infrastructure player. Healthcare is one of those areas where it will be a very slow build, but we are going to see AI bring greater R&D productivity, more drugs coming out of the pipeline. It's one of those areas that we think is an underappreciated beneficiary of AI because it is such a long tail.
Unless they all decide to become an AI infrastructure company. Why not hop on the bandwagon.
That is concerning because that is what happened in prior bubbles. We don't think this is a bubble, but we want to make sure that we don't have too many companies making that leap.
That is Franklin Templeton's Katrina Dudley. Let's get a check on the equity markets. Broadly split between gainers and losers. We are up 0.1%. We need to go up 0.4% in order to see all-time highs in this market. You have Meta, Microsoft, Apple, big tech having a good day, as is energy as the price moves higher. Concerns in the Middle East, Ukraine, Russia. To the downside, chipmakers having a rough go of it. Micron, AMD, it's a who's who of all the chipmakers. Concern seems to be emanating from advancement in Chinese companies, some of the technology they have been putting out. Also just higher oil prices. It is light volume this morning, considering bond markets are closed. A pretty even split, but thanks to energy and some of those big-cap Mag 7 names, the overall index is higher. Financials also higher ahead of the kickoff of the earnings season. Stellantis says that a combination of European and American businesses are not in the works. We will have that, next.
Time though for some top calls. Here with that is Hema Parmar.
We have a tech roundup today, starting with Salesforce, getting an upgrade, raising the company to a buy from underperform. It thinks AI will serve as a boost. Many companies are unlikely to replace Salesforce platforms, and AI could increase their dependence on the company. Next, double downgrade for Adobe. Wells Fargo slashing the stock to underweight from overweight, warning their growth is starting to weaken. Full-year targets will be tough to hit, especially as some price increases are being delayed. Shares are down nearly 2% so far. Finally, Raymond James upgrades T-Mobile to outperform. It thinks fears over SpaceX competition are years away from becoming a real threat and that T-Mobile has its own major advantages. Shares are up nearly 2%. Those are your top calls.
Thank you. The Paris Auto Show is underway as carmakers deal with more geopolitical division. The CEO of Stellantis addressed rumors that the company was looking to split its European and American businesses. He told Bloomberg those plans did not work the way they had hoped.
It is not plausible. Our strategy is based on having all of the players playing a unique role, but all of them enjoy transversal technology. Globally we develop technologies for all the brands. Those are powertrains, platforms, computing potential. This is one investment for all and then each brand will build their own path.
Joining us now is Detroit bureau chief David Welch. Who has been pushing for the brands to split up, and why is it on the table to begin with, and why backtrack and say, we cannot do it, it's not possible?
It's more market speculation than analysts pushing this because the company has a difficult time managing this huge family of brands across many global markets. What he is essentially saying is they share engines, vehicle platforms, parts, other technologies like hybrid systems. You just cannot pull a couple of eggs out of the omelette to do it. There are ways around it. Companies develop separate roles all the time. If they wanted to split it, they could find ways to do it. He is basically saying, they are not talking about that right now. They will try to make a go of it with this huge Stellantis family of brands.
How does the split look? Jeep and Ram seem to be recovering, European brands are lacking?
That is the difficult part. Suppose you were to try to split this, there would be some companies, Chinese companies, some of the other Asian automakers already in the U.S. that would love to have cheaper Ram. That is what he is saying without openly saying it. The U.S. business, if you are selling pickup trucks and large SUVs, it is quite lucrative. In Europe, you are selling smaller vehicles, lower margins. The Koreans, Japanese, all the European brands are playing in that. The Chinese cars are keeping prices in check for everybody, which makes it difficult to make money there. Everyone wants those American brands, but who wants to keep this other business in a highly contested European market? That is the difficult piece of this, if you are trying to split the company.
Part of the conversation in European sales is the competition from China. It appears the EU and China have agreed to a measure on EVs, that China would provide millions of sales of vehicles.
The Chinese have an ability to sell plug-in hybrids, electric vehicles, and they don't have the restrictions in Europe like they do in other markets, specifically the United States. Very difficult for them to get over here because of tariffs, connected vehicle bans, but they can do that in Europe. That is why we have seen mass layoffs from Volkswagen, BMW. They have all felt the pressure from this. Any threat from the Chinese to sell different vehicles, different types of vehicles in the European market has got to stress the CEOs of the European auto companies.
Thanks for joining us. That is David Welch. HSBC makes changes to its pay structure for its senior staff. We will have the details right after this break.
Let's get a check on our equity market. We are still missing out on all-time highs. Very close but unchanged S&P, and a Nasdaq underperforming. Chip stocks under pressure from competition coming from China. We move further away from all-time highs. As for the broader markets, bond markets are closed this morning, so we don't have the cash trade for you. The euro continued to sink, trading at a 2025 low. Brent crude up 2.2% following concerns about the Strait of Hormuz, potential attacks. IRGC issuing statements about a tanker. Chipotle down nearly 4%. Starbucks will not be buying it. They just issued a statement on that. IonQ down 6.5% with a new acquisition. We talked to the CEO earlier in the show. HSBC up 1.3%, moving to a pay structure that more closely resembles Wall Street. Let's get more on this with our finance reporter in London, Harry Wilson. What is HSBC considering?
They are looking at phasing out the fixed pay allowances introduced more than a decade ago. This was a policy introduced post-financial crisis, meant to better align executive pay with their banks' interests. It was always controversial in the U.K. It was an EU-introduced rule, and with the U.K. now outside of the European Union, the U.K. had abolished these rules around bonus caps, which allows the banks to make these changes like we are seeing today.
HSBC seems to be making a lot of changes, reports about cutting roles in its U.K. wealth business. What is this transformation that HSBC is attempting to undergo?
They brought in a new chief executive two years ago, and he's been doing a slew of changes across the bank over the past few years. Mergers, closures of businesses, downsizing of businesses. It all comes down to simplification. The bank is trying to simplify its structure across the world. You have the structural changes but also around pay. The fixed pay allowance has always been a complicated workaround for a set of rules that are no longer in place. This fits with a picture of a bank cutting costs but also trying to simplify its structures around the world. Part of that is how you pay people.
We will get reports from the big names this week. To what degree are the American banks still so dominant in things like trading, to what degree are the Europeans trying to wrestle any sort of market share back?
The fixed pay allowance, the bonus cap, this was always presented as something that was hobbling European banks against American banks. The fact that you have these pay structures in place meant that you could not pay your staff as much in bonuses as you had in the past. With these types of rules being removed, it should be a competitive advantage to British banks to pay their staff more. I imagine for them, it will enable them to compete better with Wall Street banks. Whether this will drastically change the landscape overnight, I doubt it. This is just the start of one of several changes the banks are looking to make, to make themselves more competitive.
We appreciate your reporting this morning. That is Harry Wilson. Here is where things stand. We are very close to all-time highs, but negative sentiment especially in the Nasdaq this morning, as semis taking the leg lower, down 0.4%. Bears have been climbing in the recent AI surveys, even though we are at all-time highs. We expect strong earnings but below the peak of last quarter. Will they show up?
Coming up in the next hour, Marija Veitmane explains why Wall Street is pulling back on exposure to the banking sector. Tina Fordham on higher energy prices and inflation. Then David George sets us up for a huge week of bank earnings. You are watching Open Interest.
Thirty minutes into your trading day. Welcome back to Bloomberg Open Interest. I'm Dani Burger. Equity markets go a whole lot of nowhere on a low-volume Columbus Day holiday. Oil edges higher, supply price melt from Russia to the Middle East. Those geopolitical risks loom as investors face earnings season and a packed week of data. More AI warnings. Anthropic flags new Claude misbehavior, including on government systems. Investors looking ahead to a busy week of data and Fed speak. CPI, PPI, remarks from Kevin Warsh are all on the agenda. Joining us now is Enda Curran. What are we expecting?
On a headline basis, accelerated inflation down 0.6% on the month, 3.6% on the year. The story there is all about energy, gas, the oil story, the Iran war. Core inflation is expected to be different. The thinking is you may see some moderation because the previous month was driven by one-offs, that wireless cell phone charge. The bigger story will be any signs of how broad-based inflation is. Is it spilling over to other sectors of the economy? We know services have been sticky, so keep an eye on insurance costs. Airfares are up 22% on the year. Keep an eye on the auto sector. Usual suspects like shelter costs. It will be a complex number. Headline sticker shock because of the Iran war, energy. Everyone will be looking at just how broad-based those price pressures are.
We also get a few clues this week in the way of Fed speak before they begin their official blackout period starting on the 17th. It will be capped on the 15th with Kevin Warsh speaking with the IMF. What have we seen so far in the run-up to this decision, whether this is a united Fed, or whether there are core differences in how they are approaching inflation and the need to curb it?
Broadly speaking, officials are worried about inflation. They want to raise interest rates at some point, but they probably think they have time to stay on hold. I base that on some keynote speeches from Vice Chair Jefferson a couple of weeks ago. John Williams made a similar point. Fed Governor Chris Waller came out with similar remarks, warning about inflation but warning they don't need to go back-to-back. There has been this chorus of officials saying they don't need to rush. There are others who continue to warn about inflation, more needs to be done. Beth Hammack is one example. The expectation among market participants is that they will stay on hold this month. We have Chairman Warsh speaking this month at the IMF meetings. That will be interesting because after the inflation readings, he says he does not like to give signals, but if we get a hot number, he may have to. That may influence the decision coming up in a few weeks.
Thank you so much. Joining us now is Marija Veitmane at State Street Global Markets. Many people would agree with you that higher rates are not breaking equity markets, but it does make it more concentrated. Under the surface, everything other than energy and tech has been struggling. Is that a reason to be concerned, or just a consistent characteristic of this market?
