Stocks Rebound on Strong SpaceX Results; AI Bubble Dispute; Tech Earnings on Deck

Good morning, I'm Vonnie Quinn with your Bloomberg Brief. Equities bouncing following strong quarterlies from SpaceX. Elon Musk looking at what could be a huge merger with Tesla. AI dispute: Ken Griffin warns investors are 'almost certainly in a bubble' in AI. Deutsche Bank's savings says he doesn't see one. And more earnings on deck with Tesla, Meta, IBM and Texas Instruments. Let's get a check on markets around the world after our first group of tech earnings.

They are finally seeing Asian stocks rebounding after two days of losses, supported by the strong earnings from U.S. tech firms including SpaceX. So you can see that tech-heavy gauges in our region, with South Korea's Kospi index up by more than 3%. We also saw Indonesian stocks reversing losses of as much as around 2% after the central bank kept rates steady. Still front and center are the data center stocks in Asia. We have South Korea's up by around 30% today, reversing pretty much all of the losses yesterday, supported by overall positive sentiment in the tech space. However, the outlier is the Australian data center, down by more than 40% after the company cut its earnings outlook amid a supply shortage and power supply delay amid the public backlash as well. So we will be watching out on the earnings from Meta later today.

Massive volatility, those are some stark moves. Now let's get to London for a look at Europe with Justina Lee.

We are seeing slight gains in the Stoxx 600 today as investors digest a flurry of earnings, but also slightly higher oil today. Of course, still geopolitical headlines, and what is interesting here is that we are seeing a divergence in the bond market today. The U.K. bond yield is basically flat, even though we did see CPI climb to the highest in 11 months, but it seems like investors have basically priced in a rate hike for the BoE next month. But you can see here at the same time, a real drop in the yield for Italy. There is really a divergence between some of those peripheral bonds and also German bonds. And if we flip the board here, of course it all comes back to France. We can still see today, even with less focus on protests in France, we can still see the spread between French and German bond yields still widening to the highest since about 2010, and we can still see here a lot of political risk being priced in, even with the French minister saying overnight that he is confident the government will be able to pass a budget next year.

Sure, and more and more companies warning there will be an impact on quarterly earnings. In the U.S., this time yesterday morning, a nice bounce for the Nasdaq 100 didn't really materialize, though the S&P did manage to eke out a gain. This morning we look like we are pointed in a more positive direction. The Russell 2000 was the outperformer yesterday, but it looks like we might see some declines now with SpaceX results obviously compounding things today and anticipation for Meta and Tesla. Netflix didn't really help overnight either. Let's take a look at yields because we did see a little bit of change in yield right now in this particular session. We did see the 10-year yield up a couple of basis points yesterday and the 30-year down a couple of basis points, so at the margins, some potential repricing for at least the possibility of a Fed hike in December if not October, although all bets are really for a hold in October. Brent crude also coloring things quite substantially in the last couple of days. We topped $111 a barrel again yesterday. That is very elevated and, of course, fewer than two weeks out from the midterm elections. The Nasdaq 100 down 3.3% and the Dow up 3%. That pretty much tells you everything you need to know about this month's trading. This gives us an individual premarket movers. Olivia?

Yes, it is all about earnings today. We are kicking off with SpaceX, where obviously third-quarter earnings came in better than expected, largely due to improvement in the AI and satellite businesses. However, the focus was fully on the earnings call, where Elon Musk threw his weight behind a potential merger between SpaceX and Tesla, which could be worth roughly $3.5 trillion. Such a conglomerate is mostly important as it would give SpaceX and Elon Musk potential room to finance some of his compute power that he's been trying to push out. He said on the call potentially 10 gigawatts extra compute power would go into effect from next year. That would cost about $500 billion, so a lot of the reason being thrown around is that financing. Moving over to Netflix, they reported their slowest sales jump in three years and also forecast a disappointing fourth quarter. That comes amid disappointing advertising revenue as well as concerns over programming. They've recently had management turnover, changing around a couple of senior leadership positions as they try to stem a 25% decline in the stock. Finally, United is also lower in premarket trading. They have reported a disappointing fourth quarter amid surging fuel costs. They were up about 60% in the quarter and also, resilient demand.

We will be keeping an eye on not just United, but many other airlines as well. Also coming up this hour, Callum Pickering of Peel Hunt joins on fiscal concerns and the possibility that investors are in a bubble. We will have an exclusive interview with Bernard Mensah of Bank of America. Elon Musk says SpaceX and Tesla form special committees to explore a potential merger. He spoke in an earnings call following SpaceX results.

I do think there is a lot of merit to combining companies, as we are pretty much in the superintelligence singularity. And there is a lot to be gained from cooperating on developing superintelligence software, chip design, robotics, mass to orbit, conductivity. I think it would be a good idea, but it is really up to the special committees of both companies.

Joining us now is our equity strategist. We know Elon Musk claims this is a good idea, he says it has to be an independent process, however independent these are. What would be the advantage here?

I think the first thing to say is that the SpaceX-Tesla merger has been rumored for some time. Rumors have been swirling ever since the SpaceX IPO, and I think the protagonists of the merger, in terms of robotics, chips, compute, superintelligence, which is the largest division by sales at SpaceX, is obviously a huge focal point for the company, and Tesla also has been investing heavily in AI and robotics. So there are some natural synergies between the two companies. But as you've alluded to, there is conflict of interest. It hasn't been confirmed, and special committees have been set up. Elon Musk is involved in the talks, so there are still hurdles to overcome around governance, valuation, and whether it is in the best interest of the shareholders for each company.

Elon said effectively it could be Tesla shareholders would be the ones you would have to convince, or that would have to be convinced. What would Tesla shareholders' problem be with this merger?

I think that is the big question. Like I said, there are some obvious synergies around compute, robotics, AI, etc., but one of the frustrations for Tesla shareholders for a long time has been some of the side projects and slightly more immaterial earnings streams that has been an overhang for the stock for many years. Obviously you can't bet against Elon Musk because he is a visionary in many ways, but Tesla shareholders are going to have to take on this additional risk around SpaceX. They would need to think about the different earnings streams, and there are also governance issues as well. Lots of things to unpack, and it would be one of the biggest mergers of all time, so enormous complexity.

SpaceX definitely surprised to the upside with its earnings. We also did get the details about Anthropic showing plenty of revenue, $16.3 billion, but a lot of spending and effectively a net loss. How is this going down?

SpaceX, of course, has reported very strong numbers overnight. I think the most interesting takeaway for me was the fact that the margin expanded quite significantly. They are scaling profitably as revenue grows, and I think that was one of the big concerns for investors around the IPO. In terms of Anthropic, some of the numbers did get leaked overnight, and the concern has been the revenue growth and whether that is going to satisfy the valuation. But we did get some additional color, but I don't think enough to move the needle.

And then we have plenty of earnings on deck as well today. Meta investors are obviously going to be watching out for how much they are monetizing the business, and we also have Tesla earnings as well. What will you be most focused on?

I think the Tesla earnings obviously have been overshadowed by SpaceX last night. I think the catalyst has kind of gone for that, and any interesting commentary we're going to be closely watching. Similarly with Meta, some of the catalysts were announced ahead of the call, ahead of the print. The announcement was a very big positive for the stock, they are making some really interesting strides in frontier models as well. The stock has held up a lot better than the tech counterparts. Meta has rallied going into the print, so I think a lot of cost of capital has been announced, but I would take some of these new products as a potential boon for the stock.

Ruhell will be around to take us through it all. Happening right now, Nvidia CEO Jensen Huang delivering the keynote address for the company's developer conference in Berlin. You can watch that conference by typing DE into your terminal. Sticking with tech, Citadel CEO Ken Griffin says investors are almost certainly in an AI bubble right now as companies grapple with AI spending and its economic impact. He spoke with Dani Burger at the Citadel Securities conference right here in New York.

Because people don't know the answer, often the conversation goes to the other one, that maybe this is a bubble. Ray Dalio thinks it is. Howard Marks says he is on bubble watch. And I wonder whether it is notable if this is a bubble, and if you have any particular thoughts about that. If it is one, what looks like it is going to burst first, at least in certain parts of the different AI layers?

Ken Griffin speaking with Dani Burger at the Citadel Securities conference. Meanwhile, Deutsche Bank pushing back on those types of comments, saying he doesn't see a bubble in AI or any other part of the financial markets. Two other top stories trending this morning: inflation hitting an 11-month high in September, driven by a surge in motor fuel costs. Consumer prices rose 3.5% from a year ago. The gain put the Bank for its first interest rate hike in more than three years. Data center giant said to be weighing options for the U.S. IPO. The company could potentially delay its U.S. debut as volatility around data centers increases. It could also cut the offering to $2.5 billion, roughly half the original target. OpenAI says some of its AI agents turned off alerts designed to fire when its models misbehave. The incident happened while the agents were performing internal coding tasks, with no external parties believed to be impacted. It follows a series of similar instances in recent months. Coming up, Marco Rubio says Ukraine wouldn't exist without U.S. support. More, next. This is Bloomberg.

If it were not for the existence of the United States and the Trump administration, there would be no Ukraine right now. Ukraine as a sovereign state would not exist. That doesn't mean the Ukrainian fighters should not be highlighted, because they have absolutely bravely fought for the country and done extraordinary things. But publicly, very clear: there would be no Ukraine today were it not for the existence of the United States supplying Ukraine in the billions of dollars.

Secretary of State Marco Rubio speaking to reporters in India after denying reports the U.S. government had anything to do with the recent slowdown of the Starlink satellite system in Ukraine. Joining us now is our Bloomberg government reporter. What is the outlook for Zelenskyy and Donald Trump? Things have been deteriorating over recent days. These talks in Oslo. You get this rhetoric constantly from the administration, pretty negative toward Ukraine.

Absolutely, and right now this is a very detrimental time for the Trump administration to be facing any kind of geopolitical escalation on the world stage. Two weeks before a major election for the president, where the president's approval rating is underwater and he continues to struggle with domestic standing. But the administration has really struggled to end the war in Ukraine for a really long time despite ongoing diplomatic talks. I know that we saw the president early in his tenure say that he was going to put an end very soon, that timeline has been missed, especially as the focus of the White House really translated into the war in Iran that they have also really struggled to end and keep a stable cease-fire over there. This is a major escalation. We are seeing harsh rhetoric coming from President Zelenskyy, and clearly Secretary of State Marco Rubio was on the defense for the administration right now, trying to kind of de-escalate the tension.

This lawsuit, if we turn to domestic issues before the midterms, the National Democrats suing President Trump, one of the issues being that he is sowing confidence in the midterms, and they are citing DHS findings that overturned the fact that 60,000 noncitizens were on the rolls to 185, which is a massive disparity. Will it impact the midterms?

It's hard to say. Remember, this is just one of the major lawsuits the Democrats are pursuing against the administration right now. It's going to go back about a week or so, where they also sued Trump over what they say are political ads on air that he has been running. But the voting issue is really sensitive to the administration, given that the president has failed to force the Senate to get a vote on the Save America Act, one of his signature legislative pushes. They don't have the votes in the Senate. But this is something the president has been really adamant on in terms of cleaning up the voter rolls. I know the White House has been staffing up in terms of trying to ensure that there's corrective efforts, or however you want to refer to it, when it comes to making sure these elections are secure. And there's no doubt that the president has sowed doubt into this midterm election.

And Howard Lutnick is really throwing a spanner into the U.S.-Mexico trade talks. At the 11th hour, almost signed and put away, now suddenly there are problems with the steel and aluminum tariffs. What is the issue?

This is another area that has been ongoing for the administration. I think they really struggled to lock in these deals. There is tension, as you mentioned, with Howard Lutnick, but I know this is also in line with Mexico's exports being almost 80% going to the U.S., so I think we are going to see these.

Thank you so much. The Financial Times saying Benjamin Netanyahu made plans to launch large-scale strikes against Iran earlier this month. Next up, the Wall Street Journal reporting it was Elon Musk who ordered the slowdown of the military-grade version of Starlink relied upon by Ukraine. And finally, the Washington Post reporting Zelenskyy said U.S. intelligence sharing has been restored. Coming up, we are going to speak with Callum Pickering of Peel Hunt. This is Bloomberg.

Good morning, let's get you set up for the day. Equities look to be bouncing back following strong quarterly results from SpaceX. Elon Musk looking at what could be a $3.5 trillion merger with Tesla. Citadel's Ken Griffin warned investors are almost certainly in a bubble. Deutsche Bank says they don't see one. And more earnings with Tesla, Meta, IBM and Texas Instruments all on deck. Futures look to be bouncing today, gaining even more on the Nasdaq 100 after we didn't actually see a gain in the Nasdaq 100 yesterday despite how things looked early in the morning. We had the SpaceX blowout Q3 results, and yesterday we did see the S&P with a gain. A lot of rotation going on as well. The Dow is literally up 3% this month whereas you have the Nasdaq 100 down. We will see if that changes. We are waiting on Tesla results today, also semiconductor processing equipment. And then we've got more details from Anthropic as well, so all of that will percolate through the market today. Let's take a look at yields. We did see the two-year edging up yesterday, no real movement today, we were up almost four basis points, still around where we were, and the 30-year was down about three basis points, it is flat, lower than yesterday. If we take a look at Brent crude, that is very much part of this market mix at the moment because we topped 111 yesterday. Continued conflicting results from the various leaders. For some stocks to watch, let's get to Olivia.

As you said, we are kicking off with SpaceX, who obviously had a strong third-quarter result, sending the stock up by roughly 9% in premarket trading. The focus really squarely on the potential merger between SpaceX and Tesla that Elon Musk really threw his weight behind in the earnings call. That could be worth potentially $3.5 trillion, and particularly as important as he needs financing to build up his AI compute program. He said he would bring up to 10 gigawatts of extra compute power next year, costing $500 billion. So this merger potentially really important for that financing. Moving over to Netflix, who reported their slowest third-quarter sales growth in roughly three years, and also forecast a worse-than-expected fourth quarter. Netflix stock is down roughly 25% year to date, wiping out $135 billion in market cap amid growing concerns over the future of the company. They tried to make management changes and announced their largest layoffs since 2022, all in an effort to try to address some of these concerns. Finally we have results overnight, those for the memory quarterly sales coming in ahead of estimates and really helping to provide a boost to the AI trade. We saw Asian stocks higher off the back of this, and we've also got a basket of European AI winners higher by about 1%.

Olivia, thank you so much. Callum Pickering weighing in on the risks ahead, writing: 'Markets are increasingly questioning the sustainability of debt-financed growth with the Fed leaning hawkish. Fiscal discipline absent in an economy heavily reliant on AI investment, the risks to the outlook are becoming harder to ignore.' I am pleased to say he joins us now. The line that stood out to me, and it really is quite a chilling line in your note, is this one, that the Fed really is going to be taking notice of: the U.S. economy is now more leveraged to its own asset markets than at any point in the modern cycle. That feels like we are really setting ourselves up for a massive amount of wealth destruction at some point if something goes wrong. Is that what you're saying?

Of course we will get some at some point, there is almost no way we can avoid this kind of boom-bust cycle dynamic. What slightly concerns me at the moment is two things. First, this juxtaposition between resilient growth, which is generating the income and the savings for investment, combined with this elevated benchmark interest rate environment. The second point that comes from that: you listen to economists in the U.S. talk about this K-shaped economy, we see this also over here in Europe. Because of this crowding-out effect from the government and the excessive debt, high benchmark interest rates, which are the hurdle for investment activities, mean that anything that is above that interest rate threshold is OK. AI is the obvious one. Anything below it is not OK. So I am more concerned by the distribution at which capital is being allocated, because we are generally short of capital for investment when these interest rates are high. It is all getting concentrated above the interest rate threshold, which is basically where AI markets are turning exuberant. Everything else that actually needs investment is not getting caught up in this surplus of savings.