Live from New York City, good morning. Bloomberg Surveillance starts right now. Tech stocks bounce, looking to snap a five-day slide as another Nvidia prospect faces pushback heading into the beginning of earnings season.
He took your advice and rolled with it. Always complaining about the fact the tech names, out over two days concentrated on one day. Now we can parse through Meta's earnings a week before some of the other tech names. The key question, capex asked and met a muse, how much is this something they can create profitability and how much is this to say they are in the AI trade.
Equity and debt as well. On the capex plans for some of the biggest players, the likes of SpaceX. But for smaller players, the uneven access to capital, seeing headlines, the news flow of the last week.
Making it scale, this Nvidia neo-cloud, a real question about his valuation and the IPO planning, shooting for something like 30 billion dollars with people pushing back saying it's 9 billion. Ultimately the real question about the evaluations lined up ahead of the key IPO, which is Anthropic, and evaluation comes into borrowing costs of CoreWeave blowing through the roof and the question of how much that could.
Eight-day losing streak for the semis. That news buried by the news from out of France over the weekend. French spreads wider. French equities lower. The euro weaker. The banks are holding for French shields this morning up. Riots across the country.
Clashes with hundreds of thousands of people, not just in Paris but other cities across France. A lot of destruction when it comes to storefronts and national monuments. The French president giving a speech last night, asking ourselves, how can French people do this to France? Drawing distinction from those who have legitimate demands and those who are just there to smash, loot, etc. He stopped short of saying this was a state of emergency. The Yellow Vests have said they will protest on Saturday. Emmanuel Macron.
What happens when they try to cut the deficit? At the moment it seems social cohesion. For the cuts needed in this market, reflected in the spreads that are wider.
Not reflect in the alarm from investors in French debt, but don't believe there is something that the themes last week. How screwed is Europe? But that has been the ongoing question by a lot of investors that are seeing huge competition for capital. Big concern about France, big question of what they can do for it, and a question of how cohesive the EU is to address this problem.
We will catch up with the top tech story of the last week. Angelo Zeno with the IPO valuation very much under pressure. France faces another debt selloff. We begin with the tech rebound pushing stocks higher. Max Kettner writing calls for the bursting equity AI bubble. We think there's too much on the factors. Max, welcome. When you say too much of the wrong factors, which factors are you pointing to?
I think some of these things around debt issuance, they are a bit overblown. I think the focus where it should be lying over the next six to 12 months is on the free cash flow dynamic. We know those charts from the last couple of months off this hyperscaler over semi free cash flow transfer with hyperscalers now going into negative free cash flow and that free cash flow basically being transferred. For me, going into 2027, this is one of the key questions around the AI trade because do we manage to see a bit of a positive rate of change, not even positive free cash flow, but just us going through the trough in free cash flow dynamics. If that happens, and that happens not because of a result of a lot of capex, but indeed because of higher profitability or sales. If that happens, that is really bullish for the tech trade because in that instance it's not a question of do you buy the AI adopters, do you buy the chip names. In that case, it's the memory names still receiving the orders and the capex, but it is also the hyperscalers making the money and the AI adopters anywhere where we are seeing some of the efficiency gains already. So therefore it would be really bullish across the entire tech universe, and that I think is the key question now for the next couple of months. It's not about who is going to issue more debt in the next couple of months.
Credit starting to widen. That's an issue for people. You can ignore high yields on software bonds, particularly Treasuries, up to a point. You can ignore because it's a reflection of tech. Tech has been leading rates. But now you start to see the spread widen. Where is the support going to come from into year-end, never mind the first half of '27? What's getting into year-end with spreads wider and chips trading a lot softer?
I would disagree. What I would say is if we had yields going up, the ten-year going up, which has been done in the last two or three months, on the back of that, stuff like triple Cs, for example, would have widened from 500 basis points at the end of February to something like 600. So barely anything. Then you have a case for complacency, and the case for higher rates, higher yields are really not being priced in by any asset class. If you had no PED rating, if that wasn't trading through the trough from March this year, and we are now approaching lows from Liberation Day last year, the trough was at 18 last April. If those things hadn't happened, then you can make a case for complacency. Look at high yield, the triple Cs are almost 1100 basis points. We are just a touch away from the highs in 2022. There is no case to be made for complacency anymore. There's a case to be made that a lot of stress is already priced in. You can see the double B and single B aren't pricing their, but there is material in the next couple of quarters. The stress is lying in triple Cs. Really there, I said we have priced in a lot of stress already, almost at the same level where we were at the peak of 2022. That is not any kind of complacency. Going forward, the support comes from that sort of area. We are seeing the stress being priced in, where there is a little less stress, only going from 1100 to 1000, for example, which would still be distressed.
Talking with the technicals in a market. West, the fundamentals. At what point do these crimp the ambitions of the tech sector? That's the ultimate question we are seeing reflected in pushbacks, evaluations of some of the IPOs people were expecting later this year.
On the fundamental side, I wouldn't really say anything has fundamentally changed over the last four weeks, and yet you've seen 700 to 1100. So it is an incredibly technically driven market, and that is where the support comes from. I don't think you can probably look at anything fundamental or a fundamental catalyst, maybe aside from the earnings season in the next two or three weeks, maybe calming some nerves around AI profitability, around the side as well. I do think it is mostly really about positioning and technicals right now, whether that's in equities or credit, because when you look, you're saying at what point does that credit spread widening, at what point when you look at high yield or even credit overall. There is barely any need for that information. I would disagree when they say high yield spreads, that's a leading indicator of things to come in broader risk appetite. That at least empirically we can really see is that high yield spreads are mostly doing the same as equities and a technical. When you look at VIX, they barely done anything. But 20 in the grand scheme of things is nothing. Look at the average, if you take the correlation effect out, you will see the lower of all the lower index, the lower VIX has been a function of dispersion of very low correlations across sectors and stocks. When you take that out, we're trading close to the 90th percentile in average stock of all. That is not a sign of complacency. That is a sign of stress, despite headline index only down 2%.
How much more stressful is the oil price having on equities, and the fact Brent is off the highs, but we are at 109 and WTI is north of 100 a barrel?
It depends on what sectors we look at. For the tech and AI trade, another one that's largely really a technical thing, and if that does recover over the next couple of days and weeks, that will drag the headline indices up. You look at other sectors like consumer discretionary. If you look at equal weight, your today we are almost down 10%. So if oil just stays at these levels, I have a really tough time believing, at least on an equal weight basis, taking the large weight of Amazon out, that actually consumers are the place to be right now. I think particularly going forward, when we realize in the first half of 2027, a little out of the better growth environment this year has really been because of fiscal impulses and the tax burden reimbursements because of the terror for funds and capex incentives. If we do see a bit of a negative impulse going into next year, therefore slowing growth, that should be hurting the consumer stocks, not only the oil price, even if they don't rise further. A little bit of a negative fiscal impulse over the next three to six months. I think consumer stocks are the wrong place to be.
How difficult is it going to be to buy the European equity story heading into next year before we get to the French elections?
On the government side, we are still underway. Almost no eurozone government bonds, whether that's really peripherals or France. So none of that at the moment. I would say stuff like European banks, for example, going into the reporting season, maybe that's the banks outside of France, because if you look at the earnings story, that's still very solid. The earnings revisions are going up in the European banks index. When you look at what the ECB has done, you have 50 basis points higher rates compared to six months ago, and that obviously helps the interest margins. On an overall impact level, probably not the place to be. I would rather be buying the dip now in the US in the tech and semis space. But when you look at the bank story in particular, in particular the bank side, I think they've really punished unjustifiably in the last couple of weeks in light of what happened in France.
Good to see you as always. Trading wider than Italy this morning. Most people would say Italy is periphery.
It raises a question about who the core is, given the lack of cohesion around the fiscal plan for Germany as well. There is a difficult moment.
The French ten-year up by another 10 basis points this morning. Spreads a whole lot wider. An update on news this morning with your Bloomberg Brief. Vonnie Quinn has more.
Four Canadian soldiers killed and thousands wounded at an army base fire. The cause is under investigation, with officials saying there's no indications of terrorist activity. US midterms 15 days away, a new Washington Post NBC Ipsos poll shows President Trump with a 33 percent approval rating among registered voters. 58% say they prefer a Democratic Congress compared with 39 percent supporting Republicans. Democrats need a net gain of four seats to take control of the Senate. A cloud firm, Nscale, facing opposition to its IPO valuation. Sources say the data center company has been seeking a valuation of $30 billion, and a cohort of investors believe a 16 to 19 billion range would be more realistic.
Up next on the program, President Trump facing backlash.
Live from New York City this morning, good morning.
Welcome to the program. Looking ahead to a week full of tech earnings. We hear from SpaceX Tuesday, tomorrow. You hear from Meta on Wednesday. Trying to hold firmer on the tech side of things. S&P bouncing back up, the biggest one-week loss on the benchmark since... On the Nasdaq 100, down every day last week, a five-day slide. Bouncing back 1%. Chip semis down for eight consecutive sessions, the longest losing streak going back to 2008, down by 16%. Nvidia up by 1.4 percent. The likes of Intel up by more than four percentage points. Look out for this story into the opening bell a few hours away. Let's talk about the latest in geopolitics.
The White House facing resistance from the public and lawmakers over its decision to waive new Russian sanctions. Is about, Vladimir Putin needs a summit on Ukraine with President Trump and Xi Jinping. Tyler Kendall has the latest.
The Trump administration is defending against some of this criticism by some in its own party, with at least 10 Republican senators raising alarm bells over the president's recent actions regarding Russia. That includes over the weekend, the White House moving to waive part of the sanctions bill that was passed and named after the late Senator Lindsey Graham, implementing the deal to get more Russian diesel to market. The White House framed the deal as helping to lower prices, but many of these lawmakers are pointing to analysis similar to our own, which finds that the initial volumes will do little to close the supply gap. President Trump defended the deal. You saw some of his words there. He said it was part of this bid to get Vladimir Putin to the negotiating table, going on to add, great progress has been made in terms of diplomacy. But we really haven't heard much on that front beyond this reporting you mentioned from The Wall Street Journal that Putin is floating a potential trilateral summit with the Chinese President Xi Jinping and President Trump when he travels to China next month. We know any potential meeting about Ukraine without Ukraine will no doubt raise the tensions even higher, as the Ukrainian President Zelensky put forward new allegations in an interview with Bloomberg News over the weekend. That includes accusing the US of deliberately slowing down Starlink internet. So this is an allegation the US Treasury Secretary Scott Bessent, in that interview, denied and called very reckless.
Quite an accusation from the Ukrainian leader over the weekend.
It comes at a time where they have been losing Starlink, and there's been a lot of questions as they feel they are under pressure from this administration. Stop hitting these Russian refineries, which has been a massive problem for Putin. They have had an embargo on diesel.
Tobin Marcus writes there's a possibility Trump can restrain the Ukrainians, but it hasn't happened yet. It continues to look intractable. We expect this to persist. It's interesting that this is a big issue sparking backlash from the Republican Party heading into the midterms. Where does this feature in the hierarchy of priorities for the electorate right now?
I would not say Russia-Ukraine is a high priority for American voters, except for seeing the effects of it economically. To the extent that the Ukrainian campaign of strikes on Russian refineries has been a big driver of diesel prices rising, that of course is an important issue. We see the White House scrambling to respond, so we've seen this be put back at the forefront. The White House's focus has been sporadic and based on shifting perceptions of whether or not there's any level of tractability, and in this moment they're freshly refocused.
Aren't they taking on endeavors that they then criticize the Biden administration for?
Well, hypocrisy is no constraint on anyone in politics. You know, I don't think the president's approach — it has certainly been distinct from the Biden administration's approach. Generally, what we've seen over the course of the Trump administration is which side he's putting pressure on depends on who he sees as more unreasonable at any given point in time. He came in sincerely believing that he would be able to get these guys to agree and bring the war to a close, but he's been frustrated. Neither side has been particularly responsive to that. At times he's shifted towards putting more pressure on Russia based on seeing Putin was being unreasonable. We had the 'Vladimir, stop!' tweet. And I think this refinery strike campaign has shifted his frustration back towards the Ukrainians.
Do you expect this administration to accept this invitation for a trilateral between Xi Jinping and Putin?
I don't necessarily. To the extent that that meeting does happen, I would not necessarily expect it to generate anything useful in terms of coming up with a plan for ending the war. It's quite clear what Putin wants, and I don't think that sitting down with the US and China will turn that Russian position into a viable postwar settlement. So acceptance so far is Trump is willing to completely cut off the Ukrainians, threaten them with things like the loss of Starlink assets, cutting off the Europeans from buying. I don't think the diplomatic process per se has a real chance of generating an outcome.
Where is the pushback coming from with respect to Ukraine from the Republican side?
They are certainly frustrated. Whether that will translate into an ability to do anything is a different question, but we did just see this Lindsey Graham sanctions bill passing with near-bipartisan support. Some of that was fondness for a lost colleague, but a lot of that reflected substantive belief across party lines that pressure needs to be brought to bear on Russia as the aggressor. So the fact that he so clearly contradicted the purpose of that law so soon after its enactment is, I think, simply getting a lot of frustration with the lawless waiver authorities he's using.
Another way of asking this is: have some of the low polls or approval ratings that have gone down, and some of the potential results coming out of the midterm elections, freed up certain Republican Congress members to kind of speak their own mind? Are you seeing a change in some of the dynamic in Washington?
Not seeing much of a change in that respect. I don't expect a lot of change in that respect even over the next few years as Trump becomes a bit of a lame duck. And the threat to their career is a primary challenge from members of Congress. As long as he maintains a level of popularity within the Republican primary electorate, he retains the ability to threaten them. So we've seen this sort of issue-by-issue, occasional expression of disapproval of the president's approach to particular topics, but not translated into widespread kind of overall backlash. Things like putting together a two-thirds majority to overturn presidential vetoes.
Do you think he will have that power and retain that power over select congressmen if the losses are bad in the midterms?
I do. Even in this environment where his overall approval ratings are down to the 30% range in a lot of polls, his popularity among Republican primary voters continues to be very high. Not as high as two years ago, but high enough to generate threatening primary challenges to intransigent members of his own party. We've seen through this cycle he successfully rid himself of various Republicans who he didn't like, in some cases in a self-defeating way, with states like Texas where he engineered a weaker nominee. I don't see that dynamic changing even in the final term.
As always, thank you, Tobin Marcus. Any of the Paxton-shaped problem in Texas. Up next on the program, we catch up with Angelo as another Nvidia-backed IPO prospect faces some difficulties. From New York City this morning, you're watching Bloomberg TV.
Equity futures this morning positive by 0.5% on the S&P. Looking to bounce this morning, to you this Monday morning, higher by one full percentage point. Semis have had a rough ride, an eight-day losing streak for chips. Looking for a bounce here this morning. Treasuries holding ground. We will talk more about what is happening through the yield curve in a moment. 2s, 10s, 30s going nowhere. 2s around 4.70, a few weeks away from the Fed meeting. Today, let's talk about France. Let's talk about what is happening in France. French debt, yields higher, equities lower 1.5%. The euro negative by 0.3%. The one to watch, the banks in Europe on the Euro Stoxx 50. Every single bank on the Euro Stoxx 50 trading lower this morning. The relative performance coming from Greek banks. The losers, SocGen, BNP. The Greeks have been through the aggressive, difficult, painful reform process. The French avoided it in the euro debt crisis.
Ultimately, yields have not gotten high enough yet to pressure them to truly make the changes, and that seems to be the theme we keep hearing. Ultimately, Greece holds the seat as president of the Eurogroup, and they are sitting pretty talking about how they have been through this and they want to see France go through it as well. At the same time, if you do not have social cohesion, how do you execute it in a way where you can give people a sense of something promising on the other?
The Greeks have been really classy about this over the last few years. When we left the eurozone debt crisis in Europe, the pain that country went through and the criticism that country went through, and the amount of sneering from Germany and France looking down their nose at Southern Europe. And now the tide has turned, complete 180. The way the Greeks and Italians are handling themselves, you do not hear the same things coming from the Southern Europeans towards their northern neighbors the same way you did 15 years ago, from the north heading south.
They talk about humility and that they understand the pain, and they understand if there is some sort of contagion event — I am not saying Greece and Italy are developing nations, but any country that has dealt with fiscal discipline, when if they catch a cold, we will suffer too, they are saying.
French 10-year around 4.90. The opening bell just around the corner. Let's get single names and morning movers. Isabelle Lee has more.
We have to start with semiconductor shares in the US, gaining in pre-market trade with the likes of Nvidia, Intel, AMD higher. It is worth noting this broad-based move is them maybe recouping some of their losses. The Philadelphia Semiconductor Index last week had eight straight days of losses, the longest losing streak since October of 2008, that is 18 years. We saw the cohort shed some trillion. SpaceX and Elon Musk making headlines. The stock higher by 0.6%. The trillionaire said he plans to distribute SpaceX shares for each American child. That announcement comes after its rival, Anthropic, said it plans to distribute some of its shares for the public benefit. It remains to be clear how this plan will move forward. Elon Musk himself did not elaborate on any such plan. But you see stock in the green, at least this morning. Finally, looking at Disc Medicine, popping more than 30%, almost 32%, after the company announced plans to discuss a topline readout for its late clinical stage trial that will potentially cure a rare genetic disease. That will come around 8:00 this morning.
Thank you. On the radar this morning, Russian President Vladimir Putin floating a summit with President Trump and China's Xi Jinping. It is an attempt to negotiate an end to the conflict favoring Moscow. Elsewhere, France picking up the pieces after its worst street violence in years. Finally, China's economy beating expectations, growing 4.5% in the third quarter, fueled by surging exports of chips and electronics. Ongoing trade tensions leave Beijing dependent on foreign markets.
This is a tension at a time when you have Europe saying we need to restrict some imports from China. China saying we sort of knew this because we are not seeing the domestic consumption. And European businesses are saying we can get cheaper labor over there and we have greater growth prospects over there due to some AI-related dynamism. Until there is a restriction coming from European policymakers, the business continues to trade bilaterally between Europe, particularly Germany, and China.
The chorus is getting louder in terms of what China needs to do in terms of the two-speed economy. Even though earlier this year they talked about how they want to reignite domestic demand, you're not seeing it. A little bit retail numbers have ticked up, but not enough. The entire economy is basically beholden to making sure these exports, which right now is held up by AI, continues. The fact of the matter is the United States, but the trade barriers up, and Europe is doing it.
Europe is eating Chinese overcapacity in a number of industries. They're pushing back against one peer. The question is which industry is next? As for the Chinese, the Treasury Secretary has already said it well: rebalance the trade deficit. The kinds of things I'm hearing from the Europeans about the trade, and at the moment, the Chinese economy is not making that pivot.
The question is, can the Europeans make the pivot quickly enough, or are they so far behind that there is already such great investment and, frankly, dependence from China and Chinese goods coming in to make any kind of fissure between the two difficult?
Some better data for them, worse data for everyone else. Another Nvidia-backed firm facing resistance. Investors urging Nscale to slash a $30 billion IPO target by nearly 50%. Microsoft stepping away from a UK data center deal with the company. Angelo Zeno writing, this illustrates the two biggest constraints to the AI infrastructure buildout: access to financing and power, while also bringing into focus the risk of the neo-cloud business model. Angelo joins us now for more. Some pushback in equities, in debt. Do you think it compromises the capex into year-end?
No, not into year-end here. This is a market saying there is too much supply coming onto the market, whether on the equity or debt side. When you look at it at this point in time, the way we look at it is you continue to have to be invested in terms of the AI infrastructure trade, because the opportunity that remains massive there. That said, you have a more bifurcated market. You continue to focus on some of the biggest players out there, the ones that can work through some of the financing uncertainties in this market, and the ones that potentially have greater access to power. That would be your big tech, megacap big names, your Microsofts, Amazons, Alphabets of the world. You also mix in maybe a little bit of the semi plays out there, the ones that will be the content winners over the next two to three years. Like we saw a couple weeks ago with the Meta news announcement, you do not want these massive disruptions in the market, and you still want to be in that trade if and when we see that happen.
Something is off about how people are valuing the ecosystem, though. There was a Reuters story last week saying potentially the IPO from Anthropic might be $500 billion less than it was maybe a month ago. $500 billion — there is an IPO prospect on the table backed by Nvidia, and investors are looking for perhaps a 50% haircut to the valuation. These are big numbers. They are large percentages. What has gone wrong?
I think you have got a number of issues going on. One, some of the Anthropic numbers that came out last week, to some may be disappointing. You definitely had a nice move in terms of the move in their valuation over the last couple of quarters and years because of that growth trajectory. Maybe that growth trajectory is not happening at the pace it was, but it is still happening, and the market is trying to figure out what the right valuation for a company like Anthropic is. The neo-clouds are a bit of a different story based on the spike in yield from CoreWeave, the threat to potentially what that neo-cloud business model is going to look like three to five years from now. I think there are a lot of bulls on the street, maybe too many, on the neo-cloud business model because of what will happen the next eight to nine months. The fact of the matter is pricing is going up for these GPU rent prices, so overall earnings will be pretty good in terms of these neo-clouds. But that is not really what the market is focused on. It is what it will look like three to five years from now. I think it is hard to turn that around. That being said, when you look at what markets do, markets evolve. I think something is going to have to change in terms of this neo-cloud business model in order to kind of keep spend going on, at least on that side of the picture.
There is an aspect that seems broader than the neo-clouds. It has to do with access to capital. A lot of investors pushing back and saying we are not comfortable with not knowing a schedule of some $5 trillion we need to finance the next three to five years as we wait to see what the valuation really is?
It crimps it. We're at a point now where you will need that access to capital. Even when you start thinking about hyperscalers, we are building up what the actual free cash flow trajectories for these companies, at least the next 18 to 24 months and likely beyond that. We need a favorable environment in terms of debt and equity markets. But when you look at the cost of capital and what these hyperscalers are able to get in the markets at this point in time, that is not necessarily something that has deviated significantly based on what we have seen from an overall rising interest rate environment. Overall, you look at the AI infrastructure build at this point, north of 60% of the capex spend is still going to these hyperscalers. As long as that remains favorable and intact, I think you navigate some of the lumpiness over the quarters.
Angelo Zeno of CFRA. Microsoft, Amazon reporting earnings in the next few weeks.
And how will that be read, a positive or a negative for markets? On one hand, it is a vote of faith from others saying they are misguided because a lot of people are concerned about the capital.
Meta kicking things off in a few days. Let's get a check on headlines with Vonnie Quinn.
New headlines from Brazil showing that Bolsonaro and Lula are locked in a tie with less than a week before runoffs. A survey finding Bolsonaro taking 50.3% of the vote to Lula's 49.7%. The runoff is Sunday. Ahead of a potential blockbuster IPO, Anthropic is reportedly committing 5% of its shares to a new public benefit fund. The Financial Times reporting the move is to tackle growing backlash over job displacement and AI safety. Elon Musk promising one of his own SpaceX shares for 'every kid in America.' The pledge comes on the heels of Anthropic committing 5% of its shares to the public benefit fund. It is not immediately clear how the share would work, the giving of the share, and Musk did not elaborate on donation plans.
Thank you very much. Back-to-back stories. Same motivation?
I think Musk was just trying to one-up Dario Amodei.
It's out of a 'now, who can give up more stock?'
And make them have a vested interest in these companies, because the more people own, the more they will become too big to fail.
Up next, Paris running out of time.
Up next, we catch up with Bloomberg's Oliver Crook. You are watching Bloomberg TV.
Looking for a bounce stateside. Equity futures positive by 0.5% on the S&P. Under surveillance this morning, Paris running out of time.
The situation in France evidently very complicated, and we did not need the events over the weekend to conclude that. It just adds to another level of complexity for the government, which does not have too much time. Our view is the volatility is going to continue out of France.
French President Emmanuel Macron urging calm after a weekend of violent riots and looting. Thousands arrested as millions protest the cost of living. Bloomberg's Oliver Crook joins us now for more.
Good morning. We are here in the Place de la République, the epicenter of many protests that occur in France. You can see the monument behind me, a statue of really the emblem of freedom, and she is now wearing a yellow vest of protest. Yes, it was a chaotic weekend. We saw a town hall burned. We saw protests across not just Paris, many other cities in France, but this may not be a one-off. We had headlines crossing that apparently now the Yellow Vest protests, the protest that gained a lot of traction in 2018 and 2019, is now planning a protest this coming Saturday. The real concern is this is going to be a replay of what we saw eight years ago, which was effectively a political movement based on something real. Back in the day, it was an increased fuel price tax hike. Now it is about cost of living and, of course, student protests, and that it degenerates into these rolling riots weekend to weekend to weekend. In Paris, it is all about cleaning up. We just have the prime minister finishing some of his emergency meetings, saying he asked the governors of France to put partial curfews in place, that they will give some support of unemployment benefits for some shop owners. We also heard from the French interior minister, who said the police will increase its presence this coming weekend. We should say the interior minister offered his resignation to President Emmanuel Macron, who rejected it. We should also say Emmanuel Macron is not in France at the moment. He has gone to Kuwait. He will then go to the UAE. He is leaving a lot of open space politically for a lot of the contestants in the election that is six months away for a nation and a government that, as we have been talking about, is caught between the bond market and the barricades.
The optics are horrendous. They are horrible. Thank you. Oliver Crook there from Paris, France. Andrew Sheets of Morgan Stanley with us around the table. What is the approach to the continent now, and to France specifically for you and the team?
First, need to start bigger picture. What does this mean for the ECB, for how investors think about duration overall? If you go back a month ago, the market was pricing in an over 90% chance the ECB would hike this month. There was a view we would see these back-to-back hikes of central banks and pretty quickly to inflation. As we have seen inflation data in Europe, it is a little more moderate, but also these broader concerns around contagion, what it could do if it causes more stress in the market, is rightfully lowering those odds, and I think could lower them even more. It is the reason we like European duration. For France specifically, our strategists had been cautious, had been negative on French debt spreads, thinking there was not enough premium. As they have widened out, they have moved to neutral. I think you now have a situation where spreads are still in a range where, relative to volatility, they are not obviously cheap, but France is trading much wider than Italy, which is rated one notch higher. France is the low A.
It is fair to say the credit agencies are behind relative to the markets. This was a feature of the debt crisis 15 years ago. How limited is it now as a feature in the market today?
That is something important to acknowledge that shifted in Europe. You have much higher capitalization in banks. The funding situation in banks is much stronger. I think the banks are also a lot more diversified. You have seen banks consciously realize the sovereign debt connection is hard to break, but what can be done to diversify exposure? Those are important steps as well. If you look at French bank equities, they are down recently, but some are still up significantly over the last two or three years. There is a profitability element, which is helpful and can help cushion some of these losses.
So you may not see a collapse the same way it was in 2011 and 2012. How much does this prohibit the desire for people to invest in Europe? How much will it push you away from risk assets given the concerns about the lack of growth and political cohesion?
It is what is so fascinating about Europe this year. If you had myself and a lot of people on this program January 1, and we handed you a newspaper from mid-October, energy prices are here and the ECB is hiking and we have political uncertainty in France, I would have assumed our growth forecast would be marked lower. And our growth forecasts have been marked up. In some cases, the European economy has been surprisingly resilient. This is an economy with a high savings rate. There is a lot of cushion already. Capital expenditure has been strong. But you also have a market where investors have different avenues to address this. Going back to the start of the year, there is a view of a lot of US policy uncertainty, we wanted to diversify away from a heavy dollar exposure in global portfolios. The euro was an obvious choice for that. Investors going back to maybe the ECB will hike less, the euro is a currency that could be more vulnerable to how investors want to express a little more caution on Europe. It is the reason we are negative on Europe.
Are you negative on the euro but seeing some positive —
See the best opportunity in US and Japanese sides, but Europe still has some strong earnings growth. You have a situation where the fact that interest rates are at these levels, the profitability of the banks is an enormous difference.
Coming from China, not coming from the domestic region.
In some ways. But the profits are important. Every loss had to be an equity raise, and that created a doom spiral.
Euro-dollar at 1.12. At the start of the year, I may have had the euro-dollar closer to parity.
Some of it has been the fact that you have had investors still trying to diversify. Some of that has shifted. What we think the market might be missing is the real yield differentials. We were in a position where, just a month ago, the ECB looked like the more dovish central bank that was providing support for the euro. That shifting, and our FX strategists have great charts saying if you look at the real yield between the US and Europe, that has really diverged.
Good to see you, Andrew Sheets of Morgan Stanley. Euro-dollar around 1.12 this morning. It echoes 15 years ago.
There is stability in the financial markets. People are not worried about contagion in the same way. But how much does it hurt the concept of the euro? How much will the eurozone get behind any France rescue plan?
The kinds of things people worry about have changed. People were worried about the prospect of Marine Le Pen taking over France, the prospect of redenomination risk — I do not hear that this morning. The concern is from the other side of the political spectrum.
That potentially Melenchon gets in and eradicates any concept of debt and causes the debt to be excused, and all of a sudden we are off to the races.
It is all relative. The euro-dollar right now 1.12. Coming up, we catch up with Chris Harvey of CIBC, Jessica Taylor of the Cook Political Report, Rich Greenfield of LightShed Partners, Subadra Rajappa of SocGen.
This is "Bloomberg Surveillance" with Jonathan Ferro, Lisa Abramowicz, and Annmarie Hordern. Live from New York City this morning, good morning, good morning. The second hour of "Bloomberg Surveillance" starts right now. Bouncing back on the S&P from the worst week since June, up by 0.5% on the S&P 500. The Nasdaq looking to bounce back from the worst week this year. Five-day slide on the Nasdaq 100, bouncing 11.2%. For the chip players, an eight-day losing streak, the longest since 2008. Chips doing better today. Intel up by 4.4%. Nvidia up by 1.6%. Heading into tech earnings, taking off with SpaceX and continues with Meta later in the week.
The key question will be: what will the capex plans be? How are the consumer profits faring and how much are they willing to keep investing in the semiconductor trade, cloud trade, AI trade, especially given some of the results will be pushed back? And how will this be viewed, whether exceeding expectations or not, will it be a positive or negative for markets?
Some pushback from Barclays just moments ago. In 2023, markets extrapolated regional bank issues to the U.S. economy. It was a mistake. The latest from Barclays this morning.
A number of people have made this point. CoreWeave is somewhat idiosyncratic. It has fixed contracts, so it cannot necessarily increase prices in tandem with increased cost of financing the way other neoclouds can. That said, this is a freakout in the debt markets. You can see it affected all other neoclouds and related debt in terms of how much they have sold off. It is becoming a credit financing issue. At what point does the math not math? When this math stops mathing, does it reduce the capital available, increase the concerns in markets?
Two bright spots on the risk radar this morning. This is one. Here's another. French debt spreads widen, yields higher. You see that again this morning off the back of riots over the weekend. French equities lower, down by 1.5%. Some of the banks leading some of those losses, SocGen, BNP. The euro weaker.
And it is not something when you have a union that's coming out and saying they will have protests Saturday. You just have the prime minister come out, as all was saying, and some cities in France now having curfews set. President Macron, a lot of this has a lot of tension leading up to when he steps down here, there will be a fresh election in April. He says there will be a hard line. At the same time, he has left for his Gulf trip. Potentially, does this have the potential to spread even further across the entire continent?
Just to clarify, a trip to the Gulf, not a trip to play golf, right?
Space for a bit of humor. Heartbreaking to see France descend into the chaos. We have talked about it on this program repeatedly. We all love Europe. What we have learned to dislike over the last 10 years is European policy. European policy has failed across a number of fronts. In many ways, if you want to relitigate history, Chancellor Merkel is at the heart of a lot of these failures. Opening the doors to a lot of migration that Europe has not been able to assimilate in a way Europe should have assimilated, to get the social cohesion required to make the big decisions Europe needs to make right now. It is going to be a struggle for France to find that cohesion the next few months.
And without that cohesion, how do you attract capital, and how much is a high debt load? How much do higher energy prices pressure the situation? This is a cost-of-living crisis metastasizing. Some of the problems are endemic.
And when it comes to the heart of Angela Merkel, when it comes to this idea, we are seeing that played out now and debated today. Do you have strong economic ties with some of your adversaries, whether Russia or China, in hopes of keeping them involved and from sparking a crisis, or do you potentially make sure you yourself are able to withstand some of the shocks you and society face? Those issues are being debated and litigated now.
Sad to see play out. The 10-year in France around 4.98. Coming up, Chris Harvey of CIBC on why the recent tech selloff is a buying opportunity, Rich Greenfield of LightShed Partners previewing the latest earnings from Meta, and Subadra Rajappa from SocGen saying the AI investment bubble is not ready to pop. We begin with Chris Harvey of CIBC doubling down on his 8020 year-end target, right, and we are looking to pick up some longer-term core positions attached to the secular AI trade. Chris joins us now for more. We are struggling to value this thing. All of a sudden, Anthropic has gone from $2 trillion to $1.5 trillion. We are talking about another IPO of a company, a prospect backed by Anthropic, facing the prospect of a 50% haircut to its valuation. What is going on?
What is going wrong? Equity markets are — there is a lot more stress today than before. In addition, I was talking to folks the last few weeks who were saying that if he is not going down, but they were not looking at small caps or industrials or financials. What we are seeing is typical of what you see in a tightening cycle. The other thing is I think people have forgotten, or until Wednesday, that you are in a tightening cycle. In a tightening cycle, the curve typically flattens, rates go higher, oil goes up, and they shift to more of a growth stance. Here what we are seeing is a little more concern. I would say last week, especially in the bond market, but you also saw it in the equity market, the first time we saw a real bid to risk aversion.
Curve flatter. It had been a lot steeper. Spreads wider. That is a challenge to equities. You just wonder if that starts to migrate up the quality ladder from high yield to investment grade. As a compromise, the buildout or not? Capex killed or not?
Not at this time. We have been talking about move up in quality, select tech. You want to be a little more defensive. What we are talking about is treading water. That appeared to be right. However, we are going to get the elections. The elections, one of the things we have been talking about is a pushback on data centers has been so strong, it has really fed over into industrials. And once we get that election, and if the GOP does hold the Senate — and that is a big question — we can see a lot of that rhetoric disappear, and that will be a lot more positive for tech and the broader market.
What do you need to see from the likes of Meta, SpaceX, Microsoft to have more conviction in your stance?
We like the communications space. More conviction? One of the things really funny that we were talking about in the office is when I first heard data centers in space, it did not make any sense. But now that we are hearing all this pushback about data centers here, it is making a lot more sense. That is not giving us more confidence in particular, but what we are saying is, huh, the equation is beginning to change a lot more than we thought. I know you are laughing, we made a joke about it. But I took a step back like I got to think about it now.
Just a practical aspect of getting a data center in space and some of the power and — honestly, I hear you. But you are saying to get more confidence you need to see data centers going up in space. But what could potentially undermine it?
Where I need more confidence is I need the bond market to settle down a little bit. We are seeing the credit market, issuance is slowing down, things are firming, things are OK. There is a big difference between what is happening with triple-Cs and investment grade. We need to get through the election. Really, it is just a little bit of time. I still believe in that secular story, I still believe the secular story is a good place and the funding markets are still working. It is a matter of time of getting through the election.
What gives you confidence, if Republicans hold the Senate, they will not push back on data centers? As Mike Rogers and Greg Abbott are campaigning, they have softened their tone on data centers.
There is a whole bunch of things. I am not sure we have enough time to talk about it. But at the end of the day, data centers also bring in revenue. What do politicians need? Revenue. The other thing is it is popular to talk badly about data centers at this time. And there is a big difference between a data center in a regulated state where utilities are regulated and not regulated. But at the end of the day, it is very popular to do it. Once you have the election over, that rhetoric will die down a lot.
Once the midterm elections are over. But November 4 starts the primary for 2028. You think this whole story just gets kicked down the road for 2028 presidential?
I think so. As you get into midterms, you bite into a narrative where you — or you sink your teeth into a narrative. I think Republicans are playing defense. Many people did not think the GOP would be at risk of losing the Senate, and they look like they are at risk of losing the Senate. So now you want to take some of those popular narratives and say those are ours as well. So you can really hold serve, if you will.
I want to finish on the banks. That was viewed as a neat proxy for the capital boom that underpinned that capex buildout. What is it now?
Thanks. This gets back to the macro. If you look at tightening cycles, typically banks do not work so well, because rates go higher, curve flattens. Also, people are worried about the consumer. It is not so much the consumer. If you look at the consumer, the consumer is fine. It is the fear of the consumer will not be fine, or why are we raising rates? Because oil is going higher. If you continue to do that, eventually that will lay on the consumer. The other thing is you are fighting against expectations. The underlying fundamentals are fine, but that is something difficult to fight against. That said, if we are talking about funding markets and stress, the banks are in great shape. It is just do people want to put a higher multiple on the situation where they are not sure about the macro or they think the macro is not that beneficial?
Tech was a tailwind. Is it a headwind now?
In the short term it was a tailwind. Longer term, if you go back and look at the macro, where do you want to be when the Fed is tightening? You want to be in more secular trades, not cyclical. You want to be in growth, in tech. What happens? Perceptions about the economy slowing down, perceptions about rates going higher, perceptions about the consumer. You go back to 1999, 2000, that was a two-two market. We are looking at that now.
Thank you, Chris Harvey of CIBC. On the tech disruption, bank after financial institution after financial institution — we caught up with Brian Moynihan last week of Bank of America and the CEO of Charles Schwab, saying they have put up the walls to AI agents engaging with their clients and their accounts.
And how much of this is due to concerns of a flood of deposits out of their bank as a result of trying to rebalance? But more importantly, there is a cybersecurity aspect. Why open up your entire system to an agent you cannot necessarily trust? The vulnerabilities are a big concern for a lot of the banks at a moment of potential disruption.
And as Brian Moynihan was explaining, as a customer, if you decide to use Muse and Muse acts in a way —
Exactly. The customer will say, yes, I use Muse, but I do not want to make that transfer, but the bank will say you gave Muse all your information, you are on the hook. This is where it becomes tricky. And they have their own agents, fear they will start having their own agents that can work with our clients one-on-one.
Dial Meta and see how long it takes to pick up.
How much do you think they are trying to anthropomorphize some of these agents because they act on their own accord? Just remove liability from themselves. "That agent has a mind of its own, so I do not have to pay the bill." How much will that be the potential legal argument?
The Nasdaq up this morning, bounce back. Let's get an update on news worldwide. Vonnie Quinn has more.
China's economy beating economist estimates, growing 4.5% in the third quarter, fueled by surging exports of chips and electronics. Still masking a struggling consumer economy as ongoing trade tensions leave Beijing dependent on foreign markets. Russian President Vladimir Putin reportedly proposing a summit with U.S. President Donald Trump and Chinese leader Xi Jinping. The Wall Street Journal reporting the goal is to end the war in Ukraine. Senior U.S. officials say Trump has not agreed to a meeting but could be receptive to the idea. JPMorgan deploying $230 billion worth of capital in an effort to boost U.S. economic security. The firm providing equity and debt financing in areas such as energy independence, defense, and aerospace. JPMorgan aiming to get $1.5 trillion to the initiative over the next decade.
Thanks for the update. Up next, mounting Russia pushback.
I told the White House team that we need to talk about it, and I think carefully consider the unintended consequences that may ensue. I know the president is evaluating this, as he does everything else.
Up next, Jessica Taylor of the Cook Political Report. Live from New York City this morning, good morning.
Live from New York City, equities doing a bit better. Up by 0.5% on the S&P. The Nasdaq higher by one full percentage point. Bond market, some calm across the yield curve, 2s, 10s, and 30s. Yields to climb a bit higher on the front end, by a basis point on the two-year. Ten-year close to 5.1% to just about unchanged on the long end of the curve. Under surveillance, a focus on politics in Washington. Mounting Russia pushback.
We understand Putin cannot be trusted. I told the White House team we need to talk about it and carefully consider the unintended consequences that may ensue from that. I know the president is evaluating this, as he does everything else. I think the right decision will be made in the end.
President Trump's Republican allies on Capitol Hill raising concerns over the decision to waive Russian sanctions. The move coming just about weeks away from the midterm elections. Tyler Kendall has more.
At least 10 Republican senators have raised alarms over the president's recent actions towards Russia, including the White House moving to waive parts of the recently passed Russian sanctions bill, named after the late senator Lindsey Graham. It is all in a bid to implement that deal to get more Russian diesel to market as the White House, as it is trying to curb costs ahead of the midterms. Many of these lawmakers are citing analysis similar to our own from Bloomberg Intelligence, which has the initial volumes released will do little to close the supply gap. We did hear from Republican Senator Ted Cruz of Texas. He is not up for reelection, but he represents a state where there is an open Senate seat. He blasted the administration and called this a "mistake," and said the White House should look at other options to reduce fuel costs, including importing more energy supplies from Canada, as well as making it easier for renewable fuel requirements to be waived. We will have to see where it goes from here. President Trump said the deal was part of a bid to get Russia to the negotiating table. And we have heard some others in the administration offer various explanations. U.S. Energy Secretary Christopher Wright saying this was a carrot so Russia could see what could be done if the conflict recedes, while U.S. Secretary of State Marco Rubio said these barrels were going to get to market anyways.
Tyler Kendall with the latest on in Washington, thank you. President Trump's approval rating coming in at a record low, just 33% weeks before the midterms. Jessica Taylor of the Cook Political Report writing Democrats remain in an increasingly strong position to regain a majority of governorships. The question is not whether Democrats will gain seats but how many. Here is another question: which seats?
North Carolina in the Senate will flip to the Democrats. Republicans have effectively ceded that race. Give the others to flip: Maine and perhaps Texas. From there, the majority hinges on Alaska, Ohio, Iowa, even Kansas. The fact that this is being fought in double-digit Trump states, states that Trump carried from 16 points to 13 points — it is not going in the correct direction for him these last few weeks. About 33% is a historic low mark, really. This is just a disastrous area you do not want to be in if you are a president with these midterms coming up in just over two weeks.
When you look at the Cook Political Report, you went from likely Republican to lean Republican to toss-up in the matter of two to three weeks. What has been the driving force in the past 14 to 30 days?
It has really been Republicans' poll numbers sagging, and that is driven in part by the economy, by the war in Iraq, high gas prices, high diesel prices. Voters are just fed up with the price of everything. It is these affordability concerns. But we get a lot more polling data the closer we get to the election, so we have a lot more data points to help us make these decisions.
When you look at some of the recap of polls last week, the Fox News poll, 95% of approval for Trump among self-described MAGA Republicans, then less than 50% of those who describe themselves Republican but not MAGA. Who comes out to vote in this election?
I think some of those MAGA Republicans, there is a question of if they come out with Trump not on the ballot. I think it is those Republicans that do not like Democrats and they do not like Republicans, do they come out at all? You see Republicans sort of closing on a message of socialism, on gender issues, is that enough to get Republicans to the polls, to sort of alleviate the strain in some of these double-digit states? Because there are more Republican votes available in the states if they come out, but are these voters going to cross over? Most of them probably will not, so I think the biggest concern is voter fatigue.
When you say it is not a matter of will Democrats gain seats, it is a matter of how many, what is the scope you have in terms of how big this could be of a blue wave?
For the Senate right now, we say between two and six seats. On the House, between 9 and 19 seats. It could be more than 20 seats, really. The House is the more certain function. And with governors, they are looking to pick up the majority of governorships for the first time since 2010. But it really comes down to the Senate. President Trump has never had both a democratically controlled House and — he has not had a Democratic Senate to work with at all. Having both houses of Congress working to obstruct him, and we're just going to see gridlock for the last two years and investigations into this White House, it is just going to be — nothing will get done. I am not sure Democrats will go down the path of impeachment for President Trump, but could they work to impeach cabinet members, like Secretary of Defense Pete Hegseth or something like that?
What kind of cohesion is there around Democrats who are coming, you think, going to get elected in terms of what types of policies you can expect to get proposed? What potential market-moving events you could see coming from this Democratic complex?
What they are able to do is constrained by the fact that they do not have the presidency. President Trump will not sign into law anything they are proposing. It is really a lot of rhetoric we will see heading into 2028. But the Democrats that are going to win, someone like Roy Cooper in North Carolina, if they are able to flip seats in Ohio and Alaska, it will be for more moderate members — more moderate Democrats. I do not see them pursuing any sort of aggressive or progressive strategies. I think they will try to do things to lower costs. Could that be rolling back some of the parts of the one big beautiful bill, bringing in, like you are talking about, more oil from Canada or something like that? Pushing back on tariffs, we will certainly see that as well.
Always good to catch up. Jessica Taylor of the Cook Political Report. Looking at two years of investigations. Two years of investigations and gridlock in Washington. If that is the way things are headed, it will not be fun.
And it will lead to a budget deficit that will probably widen. Is gridlock still good for markets?
The debt ceiling fight, if you have a Senate and the House both controlled by Democrats, is going to be incredibly tense. The president will know that, for the financial health and physical safety of the country, we will have to raise it, but what Democrats will want something massive.
Dissatisfaction with incumbents, whether Paris or Washington, D.C. Kind of remarkable.
I just wonder when people start indicting the primary system? At a certain point, it is probably going to be looked at after some of these. It has been looked at.
Stocks doing better this morning. Futures up by 0.5% on the S&P. Coming up next, Rich Greenfield of LightShed Partners previewing the latest earnings from Meta and why he believes they have their mojo back.
Stocks positive this morning, looking better than last week for sure. Up by 0.4% on the S&P. The Nasdaq 100 last week down with the biggest one-week loss of the year so far. Could turn that around in the morning session. 10s and 30s with a big rally last week. A double-digit basis decline. Close to 5.1% on the 10-year. The conversation around the front end and the policy route at the Federal Reserve heading into the meeting next week and through this week. This came from Barclays. A green light on — we expect the Fed to hold in October, hike in December, hike in January again. We had hot CPI.
If this Federal Reserve was just looking at the data, they would probably have a very good argument to hike in October. If they hold off on hiking, the rhetoric around what comes next will be that much more important. Ultimately, the market will test based on that rhetoric how much more they will have to do to compensate on the back end. Ultimately, that was a terrible CPI number and a terrible PPI number.
After the Federal Reserve is the ECB to close out the month. What can they do in the face of this? France, do they have a role to play? Maybe not much of one. Yields higher by seven basis points. The French 10-year at 4.87%. One analyst making the argument, really highlighting typically markets do not move with what we saw over the weekend, but now there are reads into the more extreme read of what could happen politically and the consequences from that and what it means for solving the problem, the deficit.
And potentially what does it mean for contagion to other countries? Have you seen the reports that potentially in early November, which is two and a half weeks away, we could have an announcement at the World Economic Forum that the president of the ECB is leaving early to go run the World Economic Forum at a time when it feels like Europe is in crisis?
Can you imagine if Kevin Warsh was leaving when there is a crisis in the United States?
Given the pressures in bringing everyone together, a real question about inflationary pressures in the region.
Maybe Macron can make the pick instead of Le Pen. Is that the argument here?
That is potentially the thinking.
Imagine that was happening in America with Kevin Warsh. Warsh was thinking about stepping down early so the sitting president could make a decision on who would be the next Fed chair and not the person leading at the polls going into next year.
Increasingly, this is a political role and understanding that, which is being reflected in sovereign debt risks, has not been there before.
