'Bloomberg Surveillance: Early Edition' Full (10/26/22)
This is Bloomberg Surveillance early edition with Francine Lacqua. Well, good morning, everyone, and welcome to Bloomberg Surveillance early edition of Francine Lacqua. Here in London, here's what's coming up on today's program. Bank earnings in the spotlight.
Deutsche Bank and UniCredit lift their revenue outlooks at higher rates, boost trading for Barclays. It's a big tech battered Microsoft Alphabet and Texas Instruments tumble after hours as weak earnings hit some of the world's top tech companies. Plus, new Prime Minister Richie Sumac appoints his cabinet as a time reports he may delay next week's fiscal statement. So first things first, let's check on the markets. We actually opened lower after that
slide because of tech earnings. A lot of questions on whether we've seen the worst of the selloff. A reminder, we've lost five point five trillion dollars since the beginning of the year. And the question is whether that year a bottom. European stocks, you can see pretty much flat to banks, maybe a little bit under pressure, down some three tenths of a percent, although Deutsche Bank or Dani Burger in Frankfurt bringing us that interview that they did better than expected on a lot of metrics. Certainly their traders did better than
a lot of the Wall Street banks. U.S. 10 year yield, four point 0 4 and then the dollar index 1 3 2 1. The picture overall is not only one of earnings and we do see a bit of volatility when it comes to that. But a lot of it is also what we do with Central Bank. So the ECB, of course, based in Frankfurt, comes out with an interest rate hike tomorrow. Then a week after it's the Bank of England here in the U.K.
And then I would also watch this country, Italy, down some two tenths of a percent for the markets at the moment. Not really latching on to that. But we had the first speech of Judge Maloney in parliament yesterday, and she really went after the ECB saying they should not hike rates. One of the feisty speech against the central bank, certainly from a G7 country. Now, the British prime minister really
Sinek has named most most of his cabinet, confirming Jeremy Hunt will remain chancellor of the exchequer. But Downing Street was unable to confirm if Hunt would stick to his plan to outline the government's spending and tax strategy on October 30. First. Now outside number 10. Soon, acreage rated the tough economic challenges the country faces. Right now,
our country is facing a profound economic crisis. The aftermath of pope, it still lingers. Putin's war in Ukraine has destabilised energy markets and supply chains. The world over.
For more, we're joined by Bloomberg's Lizzie Borden. Lizzie, which is unique, appears to have kept his friends close, his enemies closer, and his cabinet appointments. What does it say about how much experience he once has in his administration? Well, he's rewarded experience, but also a firm not to party unity. He's kept the same three holders of the great offices of state that trust hard. Just a week ago. And it's really avoiding the mistake that she made of surrounding himself with loyalists, though ironically, that means that he is now surrounded by trusts, allies.
It also means that they don't need time to settle, Leon, as you say. Jeremy Hunt is staying at the Treasury. He can deal with the crisis from the get go and instead sooner because had to reward his allies with positions lower down the pecking order. Say, for example, Mel Stride, his campaign chief, takes work and pensions. But that is an important role at this
stage, given the debate over whether benefits should rise in line with inflation. And Mel Stride has indicated that he favors that should happen. It also means that Sue Ellen Braverman remains home secretary just six days after she was sacked for breach, breaking the ministerial code just after Su Keenan has said that he's going to rule with integrity. But it's the result of him having to do a deal with the Tory right. That could be a point that is picked up
at prime minister's questions by Keir Starmer today. And it also means no promotion for Penny Morton's perhaps punishment for not conceding till the very last minute in the leadership race. So, Lizzie, it's the first face of prime minister's question between really soon they can. Keir Starmer.
What do you expect? Well, it's billed as boring versus boring, Francine, but that's a welcome thing for many in Westminster and around the country that we've got this new era of British politics. Mercifully, many would say. One of Labour's main criticisms of rarely seen out when he was chancellor. The line used to be we'd do the same thing, but we would do more of it and faster.
So it may be more difficult for Starmer to oppose soon. I would expect, as I say, criticism of the reappointment of trust allies like Sue Ellen Robert Manne. She would suggest that soon agrees with the policy of sending asylum seekers to Rwanda when soon not because promised compassion, but not really headed off a lot of the criticism you would expect soon. Starmer to make today, for example, calls for a general election by saying in his speech in Downing Street yesterday that he is going to deliver on Johnson's mandate from 2019. Hence the references to Brexit levelling up the National Health Service.
He addressed the concerns about his predecessor's mistakes and their concerns as well, that he is too rich to deal with people's real struggles in this cost of living crisis. But interestingly, a YouGov poll says that two thirds of people continue to think that rushes to knock his out of touch with ordinary people. Lizzie, thanks so much. Lizzie Borden there with the very latest on the UK. Now let's get straight to them for talk.
He's a global head of ethics research at Barclays. That was when you look at the UK. The most interesting bit is, of course, whether you have the fiscal plan, the Halloween budget, as it was dubbed on Monday, because then on Thursday we have the Bank of England decision. If this gets delayed to postpone. How problematic is it for the governor, Andrew Bailey? I think a big part of how the Bank of England has basically described the problem is that you have a very difficult underlying situation and you have an overlay of fiscal policy which can either change the situation for more hikes or just reduce the amount of ISE they need to do. But still, the bias is for higher rates.
There was a seminal speech by Ben Broadbent last week that basically described that even in the presence of some fiscal easing, you would still need to understood what the market is pricing and you know, soon. Is probably standing for a little bit less fiscal easing than before. So the overall set for the night in England is a you know, instead of where they need to hike by less than what is priced in. And how far less will depend on the budget.
And, you know, I think that there for the next meeting, they don't have enough inclination to rely on in terms of that debt. But they must. I mean, I guess the market and I don't know whether the market is under or overpricing this. Right, but the market is afraid of what happened about four weeks ago, which is we didn't have the fiscal plan to be does something. They're not aggressive enough. The market crashes this time.
We had a call between the chancellor and the governor. So is this is it this time differently if two sides speak to each other? Does it really matter to the markets? If the fiscal statement is postponed as long as they speak to each other? A little bit loot, a little bit less than before for sure. And you know, a big part of the reason is that the broader market assumption is that particularly based on the market knowing soon X platform from his tenure as Chancellor of the Exchequer, that it's not going to be fiscally expansionary. So at the end of the day, the trade offs that the Bank of England is facing are a little bit less punitive. They don't have to do as much as they would have to do. Let's just stay on the budget that was released in late September. So that part of the detail matters less.
But as you said, you know, the key race still for the market is that they get underwhelmed regardless of fiscal. OK. That was what's your call then on Sterling going forward? I think I think Sterling probably weakens the UK spacing to stocks. You know, obviously, you have an external stock to energy prices that notwithstanding the drop in natural gas prices, remains a a difficult shock to the economy as stagflation a shock. The UK economy is also facing a decline in the labour force as the result of Brexit conditions. And that seems to be an additional layer of weakness for the pound. In additional problematic zone for the Bank of England.
The bank has stabilized because the Bank of England is now priced to hike more in the Bank of England. Likely not hike as much as they are asked to by markets. And in in this kind of given that this new government doesn't show a signal that it's going to begin to change the labour market situation by more migration. Those dilemmas will probably stay. So this rally or relief that we've seen
from the pound probably a bit temporary. All right, Demos, thanks so much, so much for talking. Sarah, global head of SFX Research at Barclays. Now, coming up, we'll discuss all the action that affects markets and the implications also of a surging dollar. That's coming up next. And this is Bloomberg later today.
Also. You don't want to miss Usurps exclusive interview with the Saudi finance minister at the eye conference. And I know I'll be tuning in for that conversation on geopolitics. This is goodbye.
We are not seeing the quality prisoners get. Obviously, this will very much depend on the table slowdown that we face in the next few quarters, but the bank is better prepared than ever to withstand any quality, the ratio that we may see it. But again, we are not seeing any quality to quality pressures at the moment in any of the markets. We operate with Santander as CFO Jose Garcia Quintero speaking exclusively to Bloomberg after the Spanish lender beat estimates.
Now in other earnings, Microsoft posted its weakest quarterly revenue growth in five years, thanks in part to a surging U.S. dollar. Now here to discuss the implications of a strong dollar, send us your talk is global head of ethics research at Barclays. He's still with us. Tell. How much higher can the dollar go?
I think that we are probably at the last sort of late legs of Donna Spring. It's pretty clear that, you know, a lot of the components of the U.S. economy are starting to solve some big whether that is wage growth or whether that is inflation growth or whether that is, you know, the housing market, et cetera. At the same time, we have a big bearish view on Asia, given the way our view was that zero Covid policy was here to stay and that would be an additional impetus for the dollar.
Now, this is a much more recognised by markets past the. The National Party, Congress. And last but not least, you have seen pretty big evidence that, you know, natural gas and energy price can swing both ways. So a lot of that is in the price.
The main risk here is the main issue here for the dollar is that if you think about the balance of race, it's still skewed to the upside. And what I'm saying by this is, you know, warm weather can become a cold by the next month. Natural gas prices can spike. Intervention is now stabilizing. Asian currencies. But that may actually prove to be an entry point for investors in the future. The point is, is remain geared towards self growth and we could see more money out where inflation would start. Sorry, that was it.
So what does that mean for, for example, some of the emerging markets that you follow, if you'll get some of that denominated in emerging markets, maybe countries that have upcoming elections that are large? You know what I'm talking about? What does that mean for them going forward and their debt sustainability? I think that you're hitting the nail on the head here. In this environment where, you know, the majority, the not is behind us, but there's still some upside risk for the dollar, et cetera. One needs to understand. And now the world is set up differently for different, different countries.
There are some parts of the emerging universe that will benefit from some evidence of being in policy rates in the US. These are the high Gary currencies with good balance sheets. Brazil makes they tend to benefit when rates volatility peaks. Then there are countries that holiday high sensitivity to high rates. Financial conditions, et cetera. So, you know, the fact that global rates will stay high is a bad thing for them. This usually touches on countries that
have high financing requirements. The Indians deal in Colombia probably stand under pressure. India, Indonesia probably still on the negative end. And then the tiebreaker a bit on both G10 and E.M. is how much weaker the Chinese currency will go and how big of an influence that will have both on regional currencies Iams and the euro. And it's still probably in the balance. A little bit more downside there to to complete the fiction.
Great demo, thank you so much for talking. There, global head of ethics research at Barclays. Now let's get straight to the Bloomberg first reviews. Here's Leon here in Thailand. Hi, Francine.
Europe suddenly has more gas than it can use. Starved of Russian imports, the region has food storage facilities with LNG can't goes from around the world combined with an unusually warm weather that seeing gas prices fall back sharply to less than a third of their summer peak. Bloomberg's weather models suggest European temperatures are set to stay milder than usual, and that will be well into November. Now Australia's headline inflation has surged to a 32 year high in the third quarter, with consumer prices up seven point three percent. Well, that was on a year ago. It came that day after the government warned of mounting debt and deficit in the year ahead. The RBA thinks inflation will peak at just under 8 percent to find the end of the year.
And Adidas intends to sell existing Yeezy product designs using its own branding after ending its partnership with the rapper and design that J formerly known as CAC W. The company expects a 250 million euro hit to earnings after terminating its relationship with the star over a string of controversial social media comments. Rishi Sumac has named an experience cabinet to lead the UK through what he calls a profound economic crisis. Jeremy Hunt is remaining as the Chancellor of the Exchequer. But Downing Street has not confirmed if he'll stick to delivering a fiscal update on the thirty first of October. So, well, a brave man is backing his
home secretary just days after Liz Truss fired her over a national security breach. Lebanese 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists sent to analysts and more than one hundred and twenty countries have meanderings. If this is plain of pregnancy, we thank you so much. Coming up, some of the biggest U.S. stocks in tech tumble after hours trading following disappointing results from Alphabet and Microsoft. So we'll have plenty more on that next.
This is weekend. European aluminium is really suffering from the war, and we see that there is a paradox that a number of the producer has been self sanctioning in terms of the Russian metal. While there are others that are buying, the Russian Matt Miller are gaining from the war. In many ways. So we see that we are we are now calling for an action to sanction Russian. Well, that was the chief executive of North CAC speaking earlier to Bloomberg calling for sanctions on Russian metal, and U.S. tech stocks tumbled in after hours
trading after some of the industry's biggest companies reported disappointing results. And Microsoft posted its weakest quarterly sales growth in five years, while alphabet sales fell short of expectations. Chip bellwether Texas Instruments also gave a weaker forecast. Well, joining us now is Matt Bloxham from Bloomberg Intelligence. Matt, great to have you on the program,
as always. So, first of all, what were your key takeaways? It wasn't great. No, it wasn't. It wasn't that much of a sell off in after hours. Well, it's always tricky, isn't it, with
where people's expectations are really fixed. I mean, I think there were three things here. One, to see there's the currency headwinds, about five percentage points this quarter, a bit strong with the last quarter, but then clear a slowdown in advertising spending hitting Google, but also some signs that P.S. and cloud demand is also slowing, too. I think particularly what Microsoft said about Q4 in terms of slower as year growth, which is their main cloud platform. So that is a really Google is the big one because it gives us more of an indication of future earnings performance for all tech stocks. Yeah, yeah, I think so.
Yeah. To a degree. Because I mean, they're clearly one of the bellwethers along with matter for the advertising market. And I think clearly if corporate spending less on advertising, it tells you that they're tightening tightening their belts generally. So I think that was the kind of really important signal that we are finally starting to see signs of the economic slowdown hitting corporates at large. And beyond that, we'll see that they
have a growing cloud. Is there still growing? Well, but it's not making money yet. And so I think there's perhaps some frustration there. How big does this thing have to get
before it makes the money? Yes, generating seven billion dollars or so, maybe more of a kind of revenue quarter is kind of, you know, a big business. And also, YouTube was slower. And I think that points to the structural pressures in the app market with tick tock coming in and really pressuring the established players in that marketplace. They're all trying to rival tick tock. Yeah, that's exactly. And and kind of catch up on it, kind of
replicate what tick talks doing to their own businesses. It doesn't really work great. A younger crowd. No, it doesn't. Yeah, I can think six.
What's got such a strong lead? Obviously, the other area that they're trying to kind of tap into with YouTube is the whole connected TV push. And I think people expect to see some better traction there. But with clients cutting budgets, there's less money to go around and talk to me a little bit about Elon Musk and Twitter. So he thinks that by this Friday, he's got it. And then there was all this rumor about cutting 75 percent of the workforce. Yeah, that's right. So, see, first of all, is the deal going
to happen by Friday? It's kind of steady bleeding more that way. And kind of the bid spread has narrowed. He had a call apparently yesterday with his bankers to line up the debt. So that's really important. I think that the headcount cuts I mean,
I think Alex Webb was was talking about this last week and when he was in San Fran a month or two ago, definitely the word on the street was that Twitter can easily cope with 60 or 70 percent less had. So I think certainly if Elan does do the deal, he's going to kind of significantly, we imagine, what Twitter is as a business. Matt, thanks so much, as always. Matt Robson, they're looking at tech from Bloomberg Intelligence coming up on earnings season.
Paul Sweeney. In case you hadn't noticed, major European banks reported today to discuss how things are looking. Mike Scott, his lead portfolio manager for high yield and credit opportunities at Matt Miller. This is Bloomberg. Back earnings in the spotlight to your Bank of UniCredit. With their revenue outlook, has a higher rate was trading from Barclays.
It's a mess. Big CAC battered Microsoft Alphabet and Texas Instruments tumble after hours as week or month some of the world's top companies. Plus, the new prime minister rushes to microphones his cabinet. As The Times reports, he may delay next year's fiscal statement. Well, good morning, everyone, and welcome to Bloomberg Surveillance early edition of Francine Lacqua here in London. So earnings season picking up pace with
inflation looming over quarterly results. Let's discuss all of this with Mike Scott, his lead portfolio manager for high yield and credit opportunities at Man Group. It's, of course, the world's largest publicly traded hedge fund firms. Michael, thanks so much for joining us. Well, when you look at banks in general, so this is your specialty, right? You do high credit when you look at the sustainability of some of this credit and banks overall.
Are we in a better place than we were 10 years ago? I would say we're certainly in a better place from a credit perspective. Clearly, post the GFC, banks have really gone through a cleansing and from a improving their balance sheet metrics from solvency, etc. So from a credit perspective, we're actually less concerned about the banking system going into what we see as a global global downturn. But nonetheless, we do think that earnings will likely become pressured as we go into 2003 from the rising provisions.
I mean, three weeks ago is pretty scary what happened on the on the gilt market. We were hearing about some huge margin calls with some operators also potentially going bust if the Bank of England hadn't intervened. Well, I think that was a very interesting period. I don't think it was necessarily just solely a U.K. problem. I think what it does highlight is the hidden leverage that exists within the financial system, not least just in the banking system, but also in the shadow banking system.
You know, I think we've seen numbers where our total assets in the pension industry in the UK are 500 billion, but actually that's one point five trillion of invested assets. And clearly from these derivative contracts, when there was a sniff of margin calls and the rise gilt yields, it's had a very clear impact and devastating impacts for some of these pension. So as we go into Q2, I mean, this is an extremely uncertain time because you see parts of the markets, part of the banking, and we mentioned shadow banking during the break where people have been swimming naked. Right. Which is not the same business. If your leverage is 1 percent, if suddenly interest rates go to 5 percent where you see the fault lines. Absolutely. So from a credit perspective.
So we work in some investment grade and certainly is always at the bleeding edge. I would say if a downturn and a rising interest rate environment and we certainly see defaults picking up. And I think what is interesting actually about this cycle is actually from a high yield perspective or a bull market perspective, companies are coming into this much a position of strength. They they have spent the last two years
terming out that debt, which has actually meant that default pressures we think could be will certainly increase, but certainly won't be comparable to what we saw in the GFC is, what, 20 percent of possible defaults or is that? I think that's that's very high. I think in a bearish case, we could see high single digit. I think in our base case, we're likely to see mid single digit. But nonetheless, we are coming from very low levels currently. And as we go into a broader global downturn, that is very much can be a feature of 2023. I mean, how difficult at this point is it the banks that are in more of a precarious situation than others? Again, we didn't see any margin calls, for example, on some of the commodity players or hedge funds, and maybe we're expecting at the time of the invasion of Ukraine.
But then you could have a whole other set of problems. So I think for me, financial side of things, as I say from a credit perspective, we do see the banking sector in a much better state than it was 10 years ago. So from where we do have concerns, however, in credit markets is very much more in the loan space. So where company mortgages such as in leveraged loans.
So these are a close cousin, I would say, to the higher bond market. And many of these businesses are unhedged from an interest rates perspective. Just to give you a stats, 30 percent of businesses in the leveraged loan market in Europe are hedged for interest rate rises so that 70 percent of the market is unhedged. And that is before going into a more difficult to mom backed you up. So we do see default rates being achieved more problematic in the loan.
Leverage, leverage loan market than we do in the higher bond market. This is what for the UK or is there a difference from UK and Europe or do they have very similar patterns? They have quite similar patterns insofar as both economies or major economies have felt a very strong terms of trade shock and that is being driven by the energy crisis. And as you say that the war in. Ukraine has been a big driver of that. I would say that from a European and UK perspective, the market is already pricing in to some degree quite a dire backdrop for 2023. I think we see actually moving up to the US. That's not the case. Actually, the US market is still needs
the price in what we expect to be a recessionary type backdrop for the US as well in 2023. So when you look at your charts and when you look at some of the high yield credit, where do you see that? You know, the signals of distress coming. I think that they they have been building already and the initial sectors to to really to show credit distress already have been primarily very affected by interest rate rises. So the property sector, for instance,
consumer durables, et cetera. But I think as we look into 2023, this is certainly going to morph into more traditional spectacles in the way of industrials. You cap good space, six automotive OEM and suppliers. But as I say, I do think that, you know, from from from our perspective, whilst default rates are going to certainly increase in a hopeful market, they may not be, as we expect them to be, as severe as they were in the prior. So it was just a backdrop. Like, what's your highs conviction go so high as Covid and cool currently and where we're paid for for the risk that we take, we think non cyclical cash generative businesses with with very strong pricing power. So we like areas of healthcare, we like areas of consumer staples in particular.
Often these businesses have very strong asset backing as well. So from a creditor perspective, we not only get a fairly resilient cash flows, but we also get security from the assets that back back those credits as well. Mike, thanks so much for coming on TV today. Mike, I got a lead portfolio manager for high yield and credit opportunities at Man Geology. Now, coming up, we'll recap what we've
heard so far from European Bank earnings. We also look at market reaction. This is the. Economics, finance, politics. This is Bloomberg Surveillance, certainly additional funding like right here in London. Now we're turning to one of the biggest stories this morning. Deutsche Bank says it may exceed its for your revenue target after beating third quarter earnings estimates. Chief Financial Officer James Matt
Miller spoke to Dani Burger a short time ago about those strong earnings. What we're focused on is having a portfolio of businesses that can sort of create summer earnings stability throughout the cycle. And you're seeing that now with very strong fake and relatively weak or very weak origination advisory. I think that will sort of change again
or there'll be a rotation in 2023 as the volatility begins to stabilize. You know, the markets now, I think, have a clearer view of terminal rates for interest. And, you know, I think there'll be a a settling once. Once we have visibility into the path of both interest rates and the economy, does that deal flow then comes back to you? And I think at that point, the deal flow begins to come back. In a sense, micro macro shifting back to micro to a point in time, at which point origination advisory and for example, the credit business within fixed markets would likely start to grow. When do you see that happening? When in 2023, if you had if I had to guess, it'd be the second half of next year.
So I think there's still still some time to go on on this more volatile environment. As you say, it's important as well the businesses that we have that have large deposit books and who are based on growing loans. So so corporate bank and private bank, they're now seeing real momentum benefiting from interest rates, but also client activity. But when it comes to those riskier
loans, the leverage loans is now the time until the environment normalizes to get low to the ground to cut back on risk. Well, look, our commitment pipeline at this point is down to only about two billion. And we've we think we've marked that now appropriately to the current conditions. It's a feature of the leverage that
capital markets that that there'll be a backup every once in a while when financial market conditions change, the banks work through their pipelines and then as investors and also issuers find sort of a more accommodative environment and more predictability in terms of pricing. The market reopens and you're beginning to see that around the third quarter Deutsche Bank achieve announced. Also, James on market speaking there to our own Dani Burger. Well, then he's in Frankfurt for us. Danny, great interview. Can you walk us through some of the
numbers from Deutsche Bank? Yeah. Deutsche Bank story really is one that reflects the entirety of the banking sector. We've seen so far this year. So the volatility means that trading numbers were strong FIC revenue that was really strong, easily beating most of Wall Street interest rates. Those also giving them a lift. Net interest income was higher as well.
But similarly, like the rest of the banking sector, advisory and origination was very weak, perhaps weaker at Deutsche Bank than a lot of other banks. Of course, that business is a bit smaller than we see elsewhere. But that fell eighty five percent. You heard in that interview there he
does think that it will come back in the third quarter or rather by mid next year, but still is painful and costs are higher. So those two combined might be part of the reason we're seeing some of the weakness in shares this morning. So the business may still be strong. Dan, Deutsche Bank also operating in a difficult economy.
Would he tell you about? Yeah, he sees a 2 percent recession in Germany next year. But it's not just that it is a permanent shift that Germany is going to have to go through. It is. He calls it a deep restructuring that
will last many years. It's changing energy policy. It's changing trade with China. It's changing exports. And then there are also risks. He doesn't see them in the banking system, but he does see them spread out through these financial markets that regulators perhaps have less leverage over. He talked to me about that. Take a listen.
Market is uncertain how much of the risks and where has gone into the non bank sector, the less regulated sectors. And so is there is there sort of going to be shoes to drop in that area? That's probably the greatest degree of focus. And then also what we sometimes call cross asset risk. So so ways in which asset markets talk to each other. That that models sometimes don't predict. Those are two areas that we're looking for and looking out for potential potential risks and surprises.
So, Danny, Deutsche Bank CFO there also tell you some advice. I love this so much for Credit Suisse. I'm sure they loved it. Yeah, look, it felt right to ask Francine, because, of course, it's the biggest story in banking at the moment, but also Deutsche Bank more than three years ago had to go through the same process of doing a restructuring, a large one, in order to get that investor confidence back on, Moko said.
It came down to being decisive, to having discipline, execution. And so I said, OK, give me exactly, exactly what is your advice to your peer going through something similar? He said they've got to be patient. They need to have their eye on literally every detail and you have to bring your people along. Of course, Francine, that people question retaining talent. We know that's been a bit of a stick in
the mud for Credit Suisse. Yes. So difficult as people leave the firm. Thanks so much. Dani Burger there. Great interview with the chief financial officer of Deutsche Bank. Now, as we've been hearing, a big week
for earnings banks. Well, bank earnings, Santander, Barclays also reporting and UniCredit. So let's get our resident expert from Bloomberg Intelligence on the banks. Here's Jonathan Tice.
Jonathan, great to have you today to really try and unpack the millions. I mean, maybe not millions, but the dozens of banks figure out this week his strongest. Well, I mean, we've seen very good revenue across the board. I think if you look at share price reactions, for example, yesterday, HSBC, a little bit harsh, CFO, what did leave, but a very strong set of numbers. Look at some time that today a very
comfortable beat on revenue, but small cost mess. So when you say he's strong, it's everybody's getting the uplift from net interest income. One thing is key. You could really get up on costs because the market is looking through the net interest income up left at the moment. They're looking at what management doing with costs. They're also looking at guidance on bad debt and provisioning. And again, HSBC was a little ahead of
consensus there. But are you surprised that we haven't seen a bit of distress in that yet? So you either loans but also mortgages or does that come early next year? It's too early to say it in the numbers. But because of IFRS 9, which is the way they can account for it, we're going to begin to see banks taking charges ahead of time. They can do things like management overlays, post model adjustments this quarter and a lot more next quarter. We're expecting to see banks build the
buffers because also you lower your IRA where you don't want the regulators and the Bank of England. And then there's the ECB looking at revenues and saying, hang on a sec, you guys are making 50 cents an hour away just because rates are going up. Here comes a new windfall tax. So provisioning will be used as well, I think, by the banks to try and stave off measures from regulators. So are you expecting a lot more of those provisions to be? I mean, when does it hit? And it is actually is it more U.K. banks compared to European banks? I think probably more U.K. at the moment. And I think Lloyds and Barclays today, Lloyds, NatWest will be talking about this. The bigger banks, BNP, for example, has
a very sensible policy that kind of smooth that any way. So we won't see any negative surprises there. It's the same time as this world with the big E.M. businesses. That's where if you do get a move, they
move very, very quickly. What did you make of Barclays, these numbers? They're doing well on costs, I think was decent. I think all in all, they're doing a very good job. But as ever, with wholesale funding banks, the market doesn't really care and they look through the trading. In fact, 63 percent growth in dollars was huge and they're a dollar beneficiary. You look at HSBC yesterday, the dollar has hurt them quite badly because of a UK cost base.
So doing well. But as ever, the market sort of looks through it. So what does the market want to know? Its business model longer term. Right. Which something sometimes gets muddled in earnings quarterly results.
Yeah. I mean, sustainability is the CFO of Deutsche, he said. The question we have is how quickly does fix stabilise equities isn't doing great.
And Phase 2, which was the biggest fall between the falling off a cliff. Remember last year it was massive fees. Terrible fact in okay equities. I think we'll continue to do well through into early next year. How quickly does fees bounce back and how brutal will they be on costs? Because it is the fee pool from the investment bank that pays bonuses.
Talking about brutal, what do you do with Credit Suisse? Well, it will be interesting. I mean, it's all about how many disposals they make, because if they don't manage to sell enough at the right price, they do need a capital raise. Clearly, that's dilutive. They don't want the regulator to step in and say you need a capital raise. So it's about the disposals for them. It is a really talk. And I hear this and I kind of, you know, a lot of times pushback.
So solvency problem is, I mean, is it a problem? We're not talking about this man going under. No, no, no. But remember, though, that what we learnt in 0 9, it's not about capitalism, not liquidity.
And as and when clients stop interbank market closes, we start worrying about these things. So, no, it isn't solvency, but they do need to shore up capital. Jonathan, thanks so much, as always. Jonathan Tice there on the banks from Bloomberg Intelligence.
Now, coming up, we'll take a look at what is driving the markets today. That's coming up next. And it's the. Economics is politics. This is Bloomberg Surveillance, the addition of Francine Lacqua here in London. Let's get straight to the Bloomberg business flash.
Here's the Hungarians. Hi, Leon. Sorry. Parent company into tax has agreed to sell its business in Russia to the Middle East day her grave. The deal will preserve a substantial number of jobs in Russia, with the company picking up most of the store rental contracts in June.
In Detects, the world's biggest clothing retailer, said it was taking a 260 million euro provision for shutting operations in Russia and in Ukraine. General Motors beat Wall Street's consensus third quarter profit estimates on record revenue adjusted profit of two dollars and 25 cents a share, surpassing analysts projection of one dollar eighty nine. GM also maintained its full year profit thanks to strong sales of its luxury Cadillac SUV ISE and largest trucks. We're seeing still very strong demand for our products. We're seeing strong average transaction pricing that we continue to be able to build on. And so we are starting to see inventory build just a little bit, but well below levels that were in the past. Overall, we're still seeing a very
strong consumer for our products and Adidas intends to sell existing easy product designs using its own branding. After ending its partnership with the rapper and designer Yay! Formerly known as CAC West, the company expects a 250 million euro hit to earnings after terminating its relationship with the star over a string of controversial social media comments. Intel cites driving technology company Mobile Eye has raised eight hundred sixty one million dollars and one of the biggest U.S. IPO of the year. Shares priced above the market's range at the IPO price. The company has a market value of more
than 16 billion dollars. Intel will still control a mobile eye. And that's your Bloomberg business. Flash Francine Lacqua. Thanks so much. Now let's get more on what's moving markets in the second hour, regularly trading with Bloomberg's Joe Easton. Joe, thank you for joining us. We look at the banks, we look at technology. Yeah.
So obviously, big earnings day, as you mentioned. You know, the banks taking a lot of focus. Obviously, some individual stories going on. No Deutsche Bank, Santander as well. But they're all really facing the same kind of dynamics at the moment. Higher central bank rates is by far the
most important thing for any bank at the moment. It's really a big kind of payday for them. But obviously, the downside is the potential for a slowdown in loans, particularly in the U.K. with the mortgage market crisis,
consumer credit cards, that kind of thing. So it's kind of a strange situation where banks are getting a big boost at the moment from the rising rates, but they're also very wary that they could see a drop down in their loans coming through. Joe, what do we do with technology? You know, it's I think it's looking pretty scary, actually. Some of the numbers that you're seeing, some of the declines that we've seen in, you know, Google, Microsoft, pre market, not looking great to kind of make sense given that they're so entrenched in the global economy and have so many suppliers and other businesses that are dependent on them. But then you have to think how much further can these stocks go? And if the economy starts to, you know, bottom out into early next year, central banks then have to rethink the policy outlook and you'd potentially see a lowering of the discount rates and those stocks could look cheap again. So I think there's a lot going on. And then, Joe, tomorrow, ECB, so this is a big one.
And then we had actually the new Italian prime minister going after the ECB in her first speech yesterday. Yep. So ECB tomorrow, obviously, most people looking for a 75 basis point hike, but I think there's a lot of division in the central bank there. You mentioned Italy. You know, if you're Italy, do you really want to stop hiking rates really aggressively at the moment? I don't think so. Same with Spain. Germany. Yes, I'm sedition division.
And with the euro, the cheap labor where the euro is, that will start importing inflation more into the eurozone as the the end of the year comes in. And I think that could even put more pressure on some of the more hawkish members to hike. But the other periphery members will be less keen to do so. OK, you have stocks to watch.
You were looking at stocks and were cleaning our houses less. Yeah. That's coming from record in the U.K. So the record obviously make life so. Couple of other big brands, but they say that the hygiene business is dropping. SALES aren't as good as expected.
We're not cleaning as much as we were during the pandemic. We didn't have much else to do. We were all cleaning and now we're not done so much. Oh, come on, people, clean your houses. This is like a word of advice from Wednesday, right? I mean, I should start cleaning racket. Well, what did you do?
Guilty, Tony. Joe, thanks so much. There stocks to watch as well. Bloomberg Surveillance EARLY EDITION continues in the next hour. Give DAX Kailey Leinz in New York for. To London, this is. The risk of a U.S. recession is uncomfortably high.
I don't like it where it is. I don't think it's a done deal. I don't think it's 100 percent on the persistence, the high level and persistence of inflation. The rate environment. And now with the recession and call both in the U.S.
and Europe, the recession, we believe will be in in around 2 percent next year in GDP terms relative to 22. We're prepared to a more extreme scenario, which would see a recession on average at more than 3 percent next year. This is Bloomberg Surveillance early edition with Anna Edwards Matt Miller and Kailey Leinz ISE. It's 10:00 a.m. in London, 5:00 a.m.
in New York and 5:00 p.m. in Hong Kong. Our top stories today. Tax big day turns into a bust. Microsoft Alphabet and Texas Instruments all come out with disappointing results. Deutsche Bank delivers fixed income trading revenue soars while rising interest rates boost income from lending. And it's really seen Act's first full day in office.
Will his governments stick to the date for the next week for next week's fiscal statements? A cabinet official suggests it could be delayed. Welcome to Bloomberg Surveillance Early Edition. I'm Anna Edwards in London with Katie Lines and Chrissie Gupta in New York. Matt Miller is off today. And Katie, it seems we are all suffering a little bit of a tech hangover set and if you look at European markets and U.S. futures. But before that, we still have some positivity in Asia. Yeah, Asia didn't really feel that downward drag from the disappointing U.S. tech earnings after the bell yesterday.
In fact, we saw a continued recovery from what was brutal selling on Monday. Of course, that recovery started in the Tuesday session and it continued on this Wednesday. Overall, the MSCI Asia Pacific Index higher by about one point three percent on the day, with Chinese stocks up about eight tenths of one percent. One thing boosting sentiment is a vow
from the PBS Sea and China's foreign exchange. Authorities saying that they will support the development of stock and bond markets and the Chinese yuan will remain, quote, relatively stable. And on the subject of the yuan, the offshore yuan, strengthening against the US dollar coming off of a record low is actually stronger by one point seventy five percent on the day. So really big move.
We're now back down at the 7 1858 level or so. So definitely something to watch, although keep in mind that literally everything in Asia and G10 is weaker or stronger, rather against a weaker U.S. dollar on the day. And of course, in the bond market, we have seen some real buying coming in, yields moving sharply lower at a move that started with the Treasury market yesterday that continued overnight in Australia. For example, the 10 year yield down nearly 16 basis points on the day to just shy of 390 to greedy NIKKEI that tech hangover that may be escaped. Asia definitely has not escaped the
United States. What I will say, though, is some of the gains or some of the losses that you did see earlier in the session with some of those have been pared. Check it out. The S&P 500 futures only down five tenths of one percent.
Earlier in the session, you did actually see them lower, but almost 1 percent. So perhaps a little bit of readjustment post those tech earnings. Take a look at the 10 year yield, though, because as you pointed out, the bond market is catching a bit around the world, it seems, for all four of the 10 year yield down about six basis points. But in a volatility kind of induced context, it's still actually still not as big of this move that we've been seeing. Member moves up 15, 20 basis points in
one day. Do we see that again today, perhaps as maybe a little bit panic on the macro sphere? Speaking of, as we see those yields come lower, the dollar follows not too far behind, down about nine tenths of one percent. What's interesting, though, is that even with the weaker dollar, you're not seeing a massive move higher in commodities. In fact, Brent crude only up about two tenths of 1 percent trading with a ninety three handle, Anna. Whether that continues remains to be
seen. Yeah, we've seen quite a bit of volatility in that oil price just this morning. Crazy. Let's have a look at the European
picture. And it looks pretty mixed, actually. And we're caught between a number of different now receives here. We've got the positivity perhaps coming from a lower at the margin, very recent lower yield environment. That seems to be the the most recent developing story attached to weaker data after the US. That might leave room for risk assets to rally.
But on the other hand, the tech story is not positive. And we've got a mixed picture for earnings here in Europe as well with recession fears on the horizon. So all of that playing into a mixed story for Europe. Here's a few of the better of the businesses reporting today that I picked out to talk about Santander. The Spanish bank down by three point four percent on the map.
You can see the Spain was weak and partly it's to do with Santander. They actually delivered numbers that showed that just like many of the other banks in Europe, they're in a bit of a sweet spot where the net interest margin is getting a boost from the higher rates environment. And we haven't really seen too many questions about asset quality deterioration just yet, although there's a fear that's coming costs a bit of an issue at Santander, according to some of the analysts, UniCredit. They stock up by 4 percent, showing some of the same dynamics I describe in terms of the banking sector and net interest margins. And also pleasing the market, it would seem, with some of the guidance that they've renewed and improved for another quarter.
Heineken is down by 10 percent today. This has been a maker, of course, and they're trading volumes that volumes. The amount of beer they sold actually went up, but not as much as had been anticipated and cost once again an issue over how long it can hit the pound. And we all see a little bit a response
to what's going on in fixed income and a reassessment perhaps, or a re-evaluation of just how much hiking we get from the Federal Reserve and other central banks. So the pound at 116 right now up by more than 1 percent. So a real recovery we're seeing here in the pound. But it is a dollar weakness story and it is because at the margin, investors can be increasingly questioning just how much hiking and for how long we're going to get from the Federal Reserve as we see that data in the US deteriorates yet, which is why the dollar is so much weaker on the day and we are seeing a bid coming into the bond market. We will keep on top of those cross asset moves. But first, we want to zero in on tech stocks, which, as we said, are dragging on risk sentiment this morning.
Market trading. You have Microsoft and Alphabet each down in the ballpark of 6 percent after disappointing results from Microsoft, it posted its weakest quarterly sales growth in five years. Alphabet sales fell short of expectations as well.
Alex Webb, a Bloomberg Quicktake, is joining us now for more. So, Alex, sentiment wasn't overly bullish going into these results, and yet somehow the bar was still too high. What does this tell us? Well, yes, as you say, quite rightly, I think the ball was quite low in anything that suggests even the slightest glimmer of upside was likely to have been taken well. There was very little upside. It probably oughtn't to be a surprise. We knew that in a lot of the spending when it came to cloud computing, when it came to hardware had been bought, brought forward by the lockdowns. As you know, companies worked out how their employees were going to work from home.
But we also saw then that the impact of inflation on consumer spending has therefore affected companies ability to advertise. And so that has a massively detrimental effect on Google, which is the single biggest advertising technology company in the world. We'd seen an impact on the smaller guys. The fact that it is now hitting Google as well is significant. But then we also have it hitting the business investment side as well. When Microsoft touches a little bit about the impact or at least the read through in some of those Asure numbers.
Yeah, so like ISE years, we should qualify this by saying that is the outlook for ASIO, which is Microsoft's cloud computing business that has really roiled the markets a little bit with obviously Microsoft now appearing to trade down. But the commentary was that growth will be 5 percent slower than in the previous quarter. So if you read through those numbers, it still implies 37 percent growth compared to the 42 percent. So it is still a growing business. It's just clearly not as fast as it used to be. And as I was saying before, it is likely because people front loaded a lot of their spending that onboarding onto that platform during the lockdowns. There isn't that much more new spending as a consequence.
Alex, finally we see a ripple effect from alphabets results in the weak advertising trends. They are through other ads, sensitive stocks like metal, for example. It's not touching Twitter, though. Twitter is actually higher by about four tenths of one percent. Fifty three dollars a share. That has everything to do with Elon Musk saying he plans to close the deal by Friday. What's the likelihood that really happens? Well, it's a lot of reporting that our colleagues have made suggests the bankers are working very hard to do it, do so.
The only obvious fly in the ointment would appear to be some regulatory pushback. It seems as though that may be the Biden administration is having a look at the deal in the context of of this, some of the comments that, you know, Moscow's made it pertaining to the war in Ukraine. But we haven't yet heard anything official of that nature. So as things stand as implied by the stock price, there is a lot of confidence in this deal happening by the end of the week. Again, I will qualify that by saying the
stock has never traded in line with the forty four fifty four dollars 20. So there's always a little bit of wiggle room, a little bit of execution risk still in that price then. Alex, thanks so much. Alex, where all of Bloomberg Quicktake with the latest on the news flow coming through thick and fast from the tech sector. More on that later. It's also a busy week for European Bank earnings. Deutsche Bank says it may exceed its full year revenue targets after beating said third quarter earnings estimates.
But the CFO, James Van Mosca, is still looking for potential risks in the current macro backdrop. He spoke with Bloomberg's Dani Burger earlier. The market is uncertain how much of the risks and where has gone into the non bank sector, the less regulated sectors. And so is there is there sort of going to be shoes to drop in that area? That's probably the greatest degree of focus in and also what we sometimes call cross asset risk. So so ways in which asset markets talk
to each other. That models sometimes don't predict. Those are two areas that we're looking for and looking out for potential potential risks and surprises. Jason there Bloomberg's Dani Burger joins us now from Frankfurt with more. Danny, trading comes in strong deals,
though, all bad and bad across the sector. Where does Deutsche Bank go from here? Well, Deutsche being born Moka specifically when I ask him about that business mix. He did think it would normalize. He said, look. Deal flow. Deal activity for us.
That's going to come back for the markets. It's going to come back by the second half of next year once interest rates normalize, or at least we get a grip on that environment. But in the meantime, this was their worst quarter for deals and origination since the financial crisis dropping. Eighty five percent year over year. Now, to be clear, fit was really strong. Net interest income gave them a boost as
well, thanks to higher rates. So overall, their earnings net revenue looks strong. But yes, that is definitely a problem for them. And also a problem was higher than expected. Earning costs rather obviously higher
earnings is not a problem, but higher than expected costs was a problem. And that's potentially why we see shares lower today. On the subject of problems, other banks have their fair share of them, including Credit Suisse and James on Loca also had some advice to Credit Suisse for their restructuring. What was his message? Yeah. Kill you. You know, I had to ask this because good look at the end of the day.
Deutsche Bank went through the same three thing more than three years ago. They started their mass restructuring, trying to get investor confidence back and by most measures, if not all, they have. So he said, look, the key to that success.
It's about being very decisive, taking actions, sticking to it. And then I said, OK, then what's your advice to Credit Suisse specifically? And he said for them that they need to be patient. Very, very focused on literally every detail and they need to bring their people along. Of course, we know talent retain tainment at Credit Suisse. That certainly has been an issue for them. Danny, thanks so much. Greenberg said Dani Burger from Frankfurt with the latest on the Deutsche Bank story. Let's get to U.K.
politics. U.K. prime minister really soon and named unexperienced cabinets lead the U.K. through what he called a profound economic crisis. He confirmed that Jeremy Hunt will remain chancellor of the Exchequer. But according to Foreign Secretary James cleverly soon CAC may delay an economic plan scheduled for next week and watched closely by the Monkees thing by Sleazy. Burton joins us now from Westminster. Lizzie, what do we know then about the
October 30 first date that we have marked in our Diaries Mountain, our calendars as important for a fiscal statement in the U.K.? Well, you see, you know, it's been meeting his new cabinet for the first time this morning, including the return of Chancellor Jeremy Hunt. So we'll be expecting confirmation later today. James, cleverly, of course, the foreign secretary hinting a delay. And of course, it wouldn't be surprising if she wanted to delay this because it's going to be a premiership defining fiscal statement.
Jeremy Hunt has said himself he's going to have to take eye watering, difficult decisions, although he has hinted that he he personally wouldn't want to delay the fiscal statement so that the Bank of England can take account of it. And so that potentially there could be a smaller rate hike from the Bank of England this time. The good news, though, is that former beauty and obi are official. Charlie Bean has said that the fiscal black hole that Jeremy Hunt is going to have to shrink is now smaller.
It's now 30 billion pounds rather than 40 billion pounds, by his estimation, because of rarely see DAX effect on calming the markets or sooner. He has also appeared to have kept his friends fairly close, his enemies even closer. When it comes to the cabinet appointments, what does that say about his administration? Well, it's been a firm nod to party unity. He's kept the three holders of the great offices of state in the same positions they were last week. A bit of a change in the middle for Sowell, Ibrahim and the Home Secretary, but she is the most controversial reappointment because she was sacked only six days ago for breaching the ministerial code yesterday. Yesterday, she soon was professing to be bringing back integrity to number 10. And yet Braverman is back and it seems
to have been be
2022-11-01 06:24
