'Bloomberg Surveillance: Early Edition' Full (03/06/23)
This is Bloomberg Surveillance early edition with Francine Lacqua. Good morning, everyone, and welcome to Bloomberg Surveillance Early Edition. I'm Francine Lacqua here in London, and here's what's coming up on today's program. Shares fall in Credit Suisse after
longtime investor Harris Associates sells its remaining stake, piling more pressure on the troubled Switzerland. China sets a full year growth target of around 5 percent, coming in below economists expectations. Metals and crude oil decline. Plus, has London actually lost its
appeal as a top destination for investment? We'll discuss that in our exclusive interview with the chairman of NatWest. Sir Howard Davies. Now, first thing is first, let's check in on the markets. A couple of things that we need to look
out for. First of all, global markets pretty much steady when it comes to stocks. I think the big question is what happens to a Treasury yields? Would they extend the decline that we saw last week? And of course, as we continue looking at National People's Congress over in China. We'll have more clues on what kind of growth they're expecting. And we're seeing quite a lot of pressure on commodities on the back of that 5 percent growth target, which was a touch below what economists were expecting.
European stocks for the moment getting three tenths of a percent. S&P futures practically unchanged. And then a bit of pressure because of that expectation of China. Growth for crude oil down seven tenths of a percent. Now, let's also look, we are bracing for a lot of, of course, strikes in France over the week.
So let's also see if there's a difference between what the U.K. is doing. There was a pretty explosive interview from in the FTSE from the Shell chief executives saying, look, the U.K.
needs to do much more to become as investable as the U.S.. A bit of pressure on the 50 100. They're down one point well, zero point one percent. The CAC 40. But also the footsie nib gaining some six tenths of a percent. Now it shares in pretty Swiss are trading lower after the Swiss banks biggest shareholder for many years, Harris Associates, sold its entire stake. Here's Associate Deputy Chairman David
Harrow shared his view with Bloomberg. Last year. This has been a problem child, we've owned this bank literally since the early 2001 and the first 10 years was a very good holding. I mean, it literally went from 20 to 60 or 70. Now what we should have done is just sold it and that's it. Well, joining us for more is Bloomberg's finance reporter, Myron Huff of Meyer, who is on top, of course. Credit Suisse breaks more news than anyone else. Investors Mary and good morning are
definitely not happy. No, they're not happy. And as you saw in that clip, actually, you know, David Harrow of Harris Associates had actually been a longtime supporter of Credit Suisse. And we saw that support start to erode over the last couple years as the bank was just hit with scandal after scandal and was losing a lot of money. And that was a great interview, Francine, from last August where David Harris was saying, you know, they need to really fix this money losing investment. Now, the ironic part is that they did actually do what some of the things he was calling for.
They've decided to spin out that investment bank. But it seems to be that it's just not going to be enough. And maybe it's a little too too little, too late and too costly at this point. So they've given up. To what supporters do they have left?
So they've got the Saudi National Bank. They came in as a new, big supporter. They've almost got a 10 percent stake now. They came in with the capital raised last year and they also still have the UAE, which have been longtime supporter since the financial crisis.
What does it mean for. What does the bank need to do at this point to actually reset its business? And Mary, if you think about it, I mean, without going into philosophy, I mean, it's really difficult for the bank to attract new shareholders if everyone else is doing better because of higher interest rates. It is a difficult spot. It's a difficult year to be doing a turnaround, and the whole situation is complicated further by the fact that they have not only this complicated carve out of an investment bank which has rarely been done in history before. Not at this size and scale. And then also on the flip side, they're trying to keep their wealth business healthy and profitable.
And that's been really difficult. As we've seen just massive outflows on that side of the business. So it's really hard to get investors interested in credit squeeze turnaround story right now, particularly because they're not going to be profitable for another year or two from now. Mary, thanks so much, as always, for your great reporting, Bloomberg's finance reporter covering, of course, Credit Suisse from Zurich, American Health to Fire. Now China's National People's Congress
has agreed to set a modest economic growth target of around 5 percent for the year, avoiding any large stimulus to spur a consumer driven recovery already underway. Let's bring in our Asia chief Asia economics correspondent, Undercurrent. And good morning. So what exactly is the significance of this policy? Well, it suggests a fairly modest tone on the stimulus funds for China.
Francine Lacqua mentioned the targets come in at around 5 percent. Some economists were talking about five and a half percent. They're also talking about creating 12 million urban jobs this year, keeping the unemployment rate to serve a jobless rate at around five and a half percent. So it's kind of a broad message of steady as she goes for the economy, certainly hosing down any expectations for massive kind of stimulus that we've seen in previous China downturns. The expectation is the target will be hit. Well, because the consumer spirits business sentiment has improved with the end of Covid 0.
The second half of the year might be more difficult, however, not through the government's forward. Will it kick in? Well, more broadly, beyond that, NBC is also going to be critical to see what personnel get, what jobs. And of course, that will play a role in shaping the narrative for China's economy in the years ahead. So what has been the messaging actually on technology from China's NPC? Well, we had a true to say it made a media today we had messaging from President Xi Jinping making the point that China is going to double down on high end manufacturing. This is all about cutting China's reliance on the US and elsewhere for the kind of technology it needs to turn itself into a high tech kind of superpower.
So there's no hint of a U-turn on that. And of course, it puts itself on a collision course with the US at a time when the U.S. is forcing to export controls and auto restrictions so that messaging on developing its own technology will surely add to the ongoing tensions with the US. And nothing is so much undercurrent there, of course. On the very latest on China now, let's
get straight to the Bloomberg First World News here, Samuel. Hi again. Good morning, Francine. Bloomberg has learned the White House is close to completing an executive order that would limit some investments by US companies in China. The restrictions are said to include advanced technologies that could enhance China's military and intelligence capabilities. U.N. negotiators have agreed the wording for
a new international treaty that adds protections for almost two thirds of the global ocean. The agreement is the culmination of almost two decades of work and seeks to end the unrest unregulated exploitation of the high seas. If delegates formally adopt the tax, it will go to the UN General Assembly for approval.
And Estonia's prime minister, Katya Kallas, has secured a commanding election victory, fending off a challenge from the far right. Her Reform Party took around thirty one point five percent of the votes, with counting almost complete under colors. Estonia has been one of the most strident critics of Moscow, supplying Kiev with more weapons than any other country on a per capita basis. And the new CEO of Shell has told The Times newspaper that Britain is less attractive as an investment destination because it's failing to match green energy subsidies. Well, someone says the UK should take a page from some of the things that the US have done recently. He also criticized the shifting tax
regime and the government's energy windfall tax. That's global news powered by more than 27 hundred journalists and analysts in over 120 countries. I'm Samuel Etienne and this is Bloomberg Francine Lacqua. Thank you so much, Samuel. Here in London. Coming up, as global markets react to China's 5 percent economic growth target, we speak to Sir Howard Davies. And that was that exclusive conversation is up next.
And this is Bloomberg Quicktake. Economics, finance, politics. This is Bloomberg Surveillance Early Edition and Francine Lacqua here in London. Now let's return to one of our top stories this hour.
China has had a modest economic growth target of around 5 percent for the year. It suggests less of a boost to the already struggling world economy. Joining us now for an exclusive conversation is the NatWest chairman. He is Sir Howard Davies, Sir Howard. Thank you for joining us. Talk about banking. We'll talk about the U.K.
economy. But first of all, over the weekend, we're really trying to follow what was going on in China. A lot of economists saying, well, 5 percent is just not strong enough from a U.K. perspective. How much does the UK need a strong Chinese economy? We benefit somewhat indirectly from China because unfortunately, the U.K. does not export anything like as much to China as, say, the Germans do so in Germany. It's big news because of the exports of cars and heavy equipment. For us, it's more indirect because our
actual direct trade volumes are relatively modest. So it's not great news, but I didn't think we'd been expecting much more, frankly. And 5 percent that's actually delivered would be better than a sort of bogus eight, which which they can't deliver on. That's right. Talk to me. If you look at the pitfalls for inflation, I mean, you're one of our smartest thinkers on everything from banking to inflation to our central banks. You know, deal with it. Are you confident about the world
economy? I'm not. I'm confident that the economy is a bit better than we thought. I mean, we've said for a while that we thought the U.K. economy would be broadly flat this year rather than the recession that the Bank of England was forecasting. And so far, touch wood where we're looking as though we probably were right about that.
But I'm quite pessimistic on inflation. I think that inflation has become in this economy somewhat more embedded than we wanted. And inflation expectations are now higher.
And I think it's going to be very hard to get inflation back down close to the Bank of England's target. And do you think the Bank of England will have to be very, very aggressive in trying to regain control? Or are we are we close to seeing actually a wage spiral, or do you think they'll they'll leave it at 3 4 percent without worrying about it too much? I fear they're going to have to do more than they are currently saying. But the big question and you can see people starting to discuss this, a very interesting article by Andy Haldane, who was the chief economist in the Financial Times over the weekend as to whether really getting down to 2 percent next year is actually feasible or we should think about saying, well, we're not going to try to get there in one go. We're going to maybe get to 3 or 4 percent and then look at it again. That personally would be my favoured
route, because I think if they really do try to get to to next year, then it's going to be unpleasant. I mean, unpleasant as they'd have to crush the economy. I think they would have to raise rates quite a bit. And in order to get down to that, you've
got to change expectations. And changing expectations is tough once you've allowed them to become unanchored. And so I think the output cost of getting there would be high.
I think a four or five months ago, we were talking about, you know, zombie companies and the fact that it's amazing how fast the Bank of England was able to raise interest rates without many companies going bust. Are you still on easy? Like, you know, I know there's a lag time of how the monetary policy works, but are you uneasy about nothing ugly having happened? Well, that hasn't changed. And we keep expecting that there'll be more bad debts in the corporate sector, but we aren't seeing them yet. And it does seem that companies did build up deposits through the Covid period. They are running them down, but slowly. And so there is quite a cushion still
there for companies. So, no, we're not yet seeing the kind of wave of bad debts that we thought we might see. And I think that's true of the other UK banks.
But could they never come or at some point as are going to be reckoning time? I think in some sectors they probably will come because you probably have got preserved some companies whose business models are no longer appropriate for the new world and they were sort of set in aspic pre Covid. But at the moment, I have to say we we're not particularly pessimistic about the UK corporate sector at this point. We're talking about mortgages again. I know there is a big wall of mortgages up for refinancing, I think middle of next year. Do you worry about some of the stress? Well, it's not not enormously, because we used to stress our mortgages at 7 percent. So in other words, if you came for a mortgage with us when fixed rates were one and a half or two percent, we would say, okay, well, Francine, can you cope if interest rates are 7 and we'd go through your finances with you and see if you were okay at that. So we're not expecting since we haven't got above to there.
We're only about 4 percent at the moment. We're not expecting a lot of people to be an absolute distress unless employee unemployment rises. That is the key thing. If unemployment stays relatively low, employment rates stay relatively high, then we're not so fussed about people won't like it because they'll have less money to spend on other things that won't be great for the economy.
But we don't expect a lot of mortgage defaults. But the 7 percent stress test is also factoring in inflation at 10 percent for energy and other goods. Well, I mean, the honest answer is no, it didn't. But it so people's finances will be a bit more stressed than it looks as though it was. But there's quite a gap there. So I'm not expecting a big defaults.
As I say, people will find their disposable income squeezed and they're going to find that squeezed through inflation. But that's a different thing. All right. So, Howard, stay there, because I know we have.
We'll have many, many questions to ask you about France versus London or Paris versus London and of course, how investable the U.K. is. We're back. Mr. Howard Davies, NatWest chair, very
shortly. Coming up, we'll talk about the U.K., discuss the City of London investment appeal in a post Brexit world. More on that next. And this is. Economics, finance, politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London.
Let's continue our exclusive conversation with the NatWest chair, Sir Howard Dean, Mr Howard. Thank you so much, first of all of you, for staying with us. When you look at a lot of bankers and this was I think the latest was Citigroup.
A lot of bankers having to move to Paris. I remember you explaining also with data about how some of the high earning banks and bankers had to move because of Brexit. What does a Windsor framework mean now for four bank moves? I don't think that will make much difference at all, actually, because the key thing is what the European Union does on things like euro clearing.
And that's in their hands, not in ours. They're finding it very difficult to persuade people to shift their euro clearing into the eurozone because London is more efficient and a deeper, more liquid market. But I doubt if the Edinburgh reforms will make any any difference to those moves. But they're not on a massive scale, I have to say. So far, I mean that if you look at the numbers, you see the big winners have been Dublin and Luxembourg and to some extent Paris. We've increased our numbers in Paris. But to some extent, by consolidating from elsewhere in Europe actually is a UK investor. Also, we've had a couple of chief
executives speaking to various press saying, look, in terms of green technology, the UK should be more like the US. Other EU executives say they should be more like the EU. Where are we on invest ability of the UK right now? Well, I mean, I guess you have to look sector by sector.
And as far as the energy sector is concerned, I think we do have to listen carefully to what people like Shell are saying because, you know, that's their perception. I couldn't really countermand that, if you like, from a banking perspective. As far as finance is concerned, then I think that your London used to be the onshore financial centre of Europe really, as well as the offshore financial centre. And now I think we're becoming the offshore financial centre of Europe. So European companies looking to raise funds in the Far East and in the US, et cetera. London is still the centre, but we're no longer well positioned to intermediate intra European flows.
I think that's the shift that's going on. Is there anything that the UK can do in terms of regulation to attract more of these IPOs? I think they lost out twice last week to IPO. A different is a different matter. I mean, I think that's more to do with investment demand in the UK and what we've seen as a long period during which the UK institutions have reduced their holdings of UK equities. Now I think we might hope and hear one of the reforms is relevant. I think the solvency two reforms should make long term institutions here as should give them a higher appetite for UK equities in the long run. So that could be helpful, but unfortunately in New York did win on technology stocks.
And so any technology stock, I think fines of and more ready home in New York with analysts and investors more willing, more understanding of their business model. And so there has been a bit of a bifurcation, and that's not helped us because it's been tech stocks that have been growing more rapidly. But has that changed? And actually, is there a danger that this also hits other sectors that you don't gradually? London is just seen as less of a good place to to be IPO listed in what it could do.
And I think we need to try hard to stop that. And I think the reforms proposed by Jonathan Hill, I'm sure this is going to do with the Edinburgh reforms. Exactly. But Jonathan Hill did a very good report about the ways in which London could be made, a more interesting market for IPO. And I think those are worth pursuing.
Is there anything that you would do more immediately? Actually, I'm not sure that you can turn this tap on with just a single regulatory reform, frankly. I mean, some of the reforms on a two test stocks and things like that and voting rights are probably worth doing at the margin. And so they would make some kind of difference. But I fear we're talking very long term
trends here. Is it something that the chancellor can do more immediately in the budget to, you know, if not have a huge impact, at least be perceived as more investor friendly? Yes, I think the big problem the chancellor has got is that with the changes in corporation tax, which has been a bit of a push me pull you thing with, you know, rates supposedly going down, then going back up and investment allowances going up and then going down, I think he probably does need to tweak that because otherwise I think it is going to look as if the UK is running against the rest of the world and the UK is not very attractive from a corporation tax point of view. He hasn't got as much room for manoeuvre as some people are suggesting. Given the medium term fiscal prospects. But I think something on investment allowances would be sensible. Sir Howard, thank you so much as always, for giving. It's a little bit of your busy schedule, that was Sir Howard Davies, the NatWest chairman. Now we'll be covering all things UK
every week on Thursday at nine thirty a.m. in our half an hour special. Also coming up, the former Treasury secretary, Larry Summers says the Fed is behind the curve again. We'll speak to Greg Peters of pigeon fixed income on Fed China and his outlook. And then we'll stock coffee with Andre
out early. We'll talk about a possible IPO. And we'll talk, of course, about the price of Arabica beans. This is Bloomberg. Shares falling pretty sweet after longtime investor hairs Associates sells its remaining remaining state stake, piling more pressure on the troubled Swiss lender. Well, China sets a full year growth
target of around 5 percent coming in below economists expectations. Metals and crude oil decline. Plus, San Francisco Fed President Mary Daly says U.S. rates are likely to be higher for longer. Chair Jay Powell heads to Capitol Hill on Tuesday. Well, good morning, everyone, and welcome to Bloomberg Surveillance early edition of Francine Lacqua.
Here in London now, Fed Chair Jay Powell set to deliver his two day biannual monetary policy testimony on Capitol Hill tomorrow. He's expected to echo fellow central bankers in suggesting that interest rates will go higher than anticipated. Well, the former Treasury secretary, Larry Summers, says that the Fed is behind the curve again. He spoke with Bloomberg David Westin. The Fed right now should have the door wide open to a 50 basis point move in March.
No need to be committed to that till we see the next employment figures to one sees what happens in markets. But if markets are now saying 22 percent, that means the door isn't open to that possibility. And there there's a very significant chance that that's going to be the right thing to do. Well, joining us now is Greg Peters, he's managing director and co chief investment officer of PJM at Fixed Incomes.
Greg, thank you so much for joining us. It does seem if you look at actually fixed income and some of the wild swings that we saw on treasuries and just in general yields, including high yield, like what's the new regime looking like for fixed income? Well, I think fixed income is just following the data like the Fed. So everyone's proclaiming the Fed should do this. That should do 25. They should do 50. But we're all just beholden to the data
releases and fixed income is just just falling along. What I think is interesting, though, is that the fixed income market continues to be very inverted from a yield curve perspective. So you have this higher for longer and the front end and then you have this, you know, pricing in a recession that leads to a certain degree in the back end. And at the same time, you've had a very solid backdrop for risk assets. And so those two things really don't comport. But, Greg, the market is basically trying to figure out what the Fed does. But we need to figure out what inflation
does. How do you expect inflation to behave in the next six to seven months? So I think the lesson learned and relearned over the past two years is that inflation is really difficult to forecast. Right. So the forecast error around that function is extremely high. At the same time, we do think it's coming down. But the real question is, where does it land? So you're seeing, you know, the wage pressure side is the key because it's hard to get service inflation lower when wages are so strong and the labor market so strong. So that's really the key. So it's almost more about labor than it is inflation.
But how is it possible and I understand that monetary policy has a laggard, maybe 12 to 18 months that, you know, a former policy member reminded this of us last week. But how is it possible that employment is still so strong, given how much we've hiked? It is what it is befuddling to many. And I don't think anyone really forecasted such a high level of rates with such a strong kind of labor resiliency. At the same time, though, a lot of the areas of the labor market are just recovering from pre pandemic.
So if you look at some of the service areas around hospitality, that's still below where it was. So it's a very interesting labor market for sure. But at some point we know we don't know what the level is. But at some point, we're pretty certain that higher rates will lead to a weaker employment market. Greg, you know when that is and again, I mean, we're talking about the consumer, you know, continue to spend how much of this is a legacy of Covid of savings that they had put in place that they're now burning through. So. I think what's been missed is the
strength and the nominal growth, right? So everyone's been focused on real GDP. But when you're coming off a very high nominal growth, which is where we're coming off of, it's still reasonably high. That means there is an underlying strength underlying spending. And I think it just takes longer for that to shake the system. So the Fed, I believe central banks globally will hike until something breaks and we're just not there yet. How much imagination do you think
central banks and the Fed especially will have? So will they stick to the 2 percent target? Will they live with inflation at 3 to 4 percent? Because otherwise we'll have to crush the economy. Or will they just do, you know, delay the communication when they'll touch 2 percent? Well, I'm hoping they're not overly dogmatic, but I think three and a half to four is too high. I think in the two present ISE area is actually okay. But it's an open question. You know, everything's an open question.
Right. But I think the worry is that once you get lose control around inflation, it's hard to get it back. And the Fed knows this and they're a student of history and they don't want to be on the wrong side of history here. So 2023, how much volatility in bonds? I mean, I feel like this is the year of fixed income to, you know, the good or the bad side. No, I still think it's a year of fixed income. So I do think bonds are back.
Yields are higher, often negative zero rates. These are all very positive items for sure. But there's still a lot of work to do and volatility will rule. We'll be here for a while, but we're coming off of a much higher yield level.
It covers a lot more mistakes. So, Greg, what are you buying right now? If you put if you look at your ideal portfolio, let's say, two months from now and then longer term to the end of the year. Is it different? It is.
So I think it's too early to go deep in risk, deep cyclical type of investments. We see a lot of value in structured products. We see a lot of value actually in the front end. You're getting a lot of carry. So we think it's a market to take what's given to you. And there's a lot being given.
And so it's not a place to go into triple C's levered loans, all these types of areas. It's a much safer environment for bonds. And we're just taking the carry and roll. I don't know how you look at the inverted yield curve.
I have, what, at least one or two viewers every day that someone could chart on this. Like, what do you think it shows us? Well, what it shows me is that something needs to be reconciled this year. And I think that's the source of volatility. You can't have an inverted yield curve and expect risk assets to do well. So what I worry about in terms of 2023 is actually we achieve this soft landing and the curve starts to normalize. And that's the catalyst for the slowdown because there's so much borrowing off the intermediate, the back end of the curve, that that could actually be the hit to consumers.
That could be the hit to corporations ultimately. So it bears watching, no pun intended. It sure does. Bear watching. Greg, I mean, we saw we had the new China data, certainly growth forecasts, which some economists say, look, it's disappointing, but I guess there's a better chance of them actually hitting it. Does that change your strategy or at
least you're thinking longer term of how much China can contribute to the U.S. economy? Well, so I think what's being missed here is a secular shift. The past 10, 15, 20 years where China was the driver of global growth, growth, that is no longer the case. And so I think what you'll see during this whole economic maturation process of China is just less and less growth into the global system. And that matters a lot. So I don't think we're going to have the same kind of fueling of China into the global system.
And this is just a reflection of that reality. So five years forward, 10 years forward is going to be less and less and less. And that matters globally. But they've also been talking about creating a parallel system. Right. So this affects how much treasuries they buy.
But also, I don't know whether there's Petros, one that we need to worry about or, you know, China's reserve currency like NIMBY. Well, so I think you're bringing into this whole geopolitical aspect that I think will also assert itself as as China starts to slow, that geo political peace becomes more important and more prevalent and more pronounced, actually. So I think unfortunately, this is the world that we live in. The risk that we really haven't worried about in the past 10 years is really heightened here around geopolitics. And I think it means you need extra risk premium as a result. Greg, how much time you spend thinking
about Japan? This is probably the most exciting right moment for the country in at least a decade. Yes. Of more, I'd say. Yeah. So, I mean, speaking of regime shifts,
so no end of the Kuroda era. But it's an open question as well. So. Well, will rates move higher? Maybe a little? Not a lot. But I think, you know, Japan is very much stuck to to to a large degree. But I think the bottom line, whether Japan, U.S., Europe, is that higher rates all else equal or better. Right. They're better for savers, pension funds
and the like. And so I think we're in a much more natural world, a much more natural state of investing. I think that's all good. But Greg Windsor, when you speak to investors or your clients, do they ask you about Europe? Do they ask you about Japan or they just pound you with Fed questions? Well, it's always the Fed is definitely the number one question, but it is a global marketplace. And there is a a revisiting portion of
of global investing. Right. When in the US and Japan with rates at such low levels, it really forced investors outside those jurisdictions. So what I think you'll see over the course of the next year or so is just continued kind of repatriation of funds back to kind of the homebuyers. Right. So I think that all needs to kind of sell and shake out.
Well, not dull. Greg Dalton, Paul, thank you so much for joining us. Greg Peters are managing director and co chief investment officer of PJM Fixed Income. Now, we lost a couple of minutes. We also have some breaking news out of China. We understand through The Wall Street Journal that China is poised to create a news government agency to actually centralize the management of the country's store data.
Again, we've been looking at their relationship with technology and data gathering. We understand through The Wall Street Journal that the News National Data Bureau is expected to become the main Chinese regulators on various data related issues. And then multiple ministries had shared the oversight. And we understand this is probably centralized, the latest news coming out of the National People's Congress. Coming up, we talk coffee and that you
need. The chairman of any cafe joins us to discuss consumer confidence and the cost of living crisis. And, of course, the future of the coffee industry. That interview in just a couple of minutes.
And this is. Economics, finance, politics, this is Bloomberg Surveillance early edition of Francine Lacqua here in London. Now let's get straight to Bloomberg Business Flash here, Samuel. Hi, Sam. Hi, Francine. Italy's state lender, CBP, says it's
teaming up with Australian Infrastructure Fund Macquarie on a bid for Telecom Italia ISE Landline Network. The offer counters one last month from US investment firm KKR. Both bids are said to value the Italian asset in a range of 18 to 20 billion euros, including debt and some performance based earn out. Softbank backed UK chip designer ARM is reportedly seeking to raise at least eight billion dollars in a U.S.
IPO. Reuters says ARM is expected to confidentially submit paperwork for its listing in late April. Bloomberg earlier reported that bankers had pitched a wide valuation window of between 30 and 70 billion dollars for the company. The new CEO of Shell has told the Times newspaper that Britain is less attractive as an investment destination because it's failing to match green energy subsidies. Well, someone says the UK should take a page from some of the things that the US has done recently. He also criticized the shifting tax regime and said the government's energy windfall tax. Tesla has cut the prices of its Model S
sedan and Model X SUV in the US for a second time this year. Tesla sells its cars. Director consumers and often tweaks his pricing. The latest moves come even though Tesla drastically cut prices in January. In a broad bid to boost sales. And that's global news powered by more than twenty several hundred journalists and analysts in over 120 countries. Samuel Etienne and this is Bloomberg.
I can't thank you so much. Now, coming up at the chairman of the cafe, Andrew LEIGH joins us to discuss the outlook on coffee, my favorite subject and the consumer trends to watch this year. That conversation is up next. This is Bloomberg. Economics, finance, politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London. Now let's get to another exclusive conversation probably with one of my favorite subjects. With interest rates heading higher and
the soaring cost of living. Biting. What's the outlook for discretionary consumer spending? We're talking coffee. I'm very pleased to be joined by our ENI, the chairman of the cafe. Thank you so much for joining us. I have to disclaim that coffee, especially in a newsroom that wakes up at 3:00 in the morning. Is more of a national obsession.
How do you see our our consumption of coffee changing through locked down into the next two, three years? Coffee? Well, we drink coffee. Not a good time, but time. Coffee is always there because with good time, you celebrate with bad time. You encourage yourself. It's good for the dynamics. The, you know, professional and social life. So consumption is obviously not worried about the trend.
No, no, no. Coffee differently than we used to live a bit more at home. Because thanks to, you know, smart working people maybe go less often to office and they stay home and they consume more at home. So they're seeking for better homes
where they keep the weight, the coffee machines portion IT systems. So we used to be 60 percent out of home and 40 at home. Now it's during Covid. This has been reverted and now is 50 50. And we think we will stay there to underwrite where's your biggest area growth? First of all, when you look at I imagine that it's different because you have many more Italian coffee shops in Italy that people drink at the bar very quickly, that the composition of how much you sell in bars compared to at home is different, for example, in the U.K., in Italy or in the U.S.. Well, super premium Italian espresso is
growing internationally because it's also leading the kind of a driver for growth for premium coffee altogether. This is interesting. The commoditization of coffee from a pure functional beverage to an experiential one is really so dynamic. And this is why we export more and more. And more than two thirds of our sales are now internationally in 147 countries. So we are definitely the most global coffee brand and there is so much room for growth for the future.
Yeah. So first of all, this is exactly what I needed at 5:00 in the morning. A super premium Italian espresso. Is there a danger that if you become too big, you become less luxurious so you lose a bit of that super premium aspect? It is still a niche brand and we want to stay niche. The demand is growing. So that means that even though the maybe the munition becomes the same, the market is growing because the demand for premium coffee is growing. And as far as diluting, let's say, their brand equity, I don't see this is a problem. And for sure, we never compromise on
quality. I'm coming back from Brazil now, where I'm constantly working with growers in order to improve their sustainable quality and also create the offer for production for the future is ahead. So what do you make? And we've been looking actually at the price of coffee beans quite intensely, especially in preparation for this interview. Robust coffee has rallied in terms of prices. What's the impact of that? You know, prices of coffee are now volatile.
There is a volatility which is now not driven any longer by the shortage of supply, which was two years ago as a consequence of this, frosts in Brazil. Now, production is expected to be at least in balance with consumption. But because we don't have a clear figure about how much will be the production, still there is a little bit of volatility. So I predict this price to stabilize during the 2023.
But if you look at Arabica says if the price of robust. I mean, look at me. I'm like an expert in coffee. Right. You have robust and Arabica for Buster.
The coffee prices go up quite significantly. Is it less likely that companies will blend it with the better Arabica? Hopefully, yes. Even though we don't deal with robust outlook. So you don't like premium coffees, only
Arabica. So typically there is an arbitrage so much the other way around with Arabica is too expensive. Some roasters they use a little bit of more robust stuff in order to mitigate the price increase. Andre, how's the expansion of the U.S. going? Are you getting business or are you where you are? You want to be or is there going to be a lot more expansion? We are where we want to be. It's our second largest market after Italy. We seek for the US to become medium long term.
The first market altogether. So we are investing in distribution. We are in product development. We are on target. And still we will improve our let's say in the. And in the years ahead, will you IPO? I ask you this every time we ask the chief executive every day. It's a it's in the plan. We now have a core investor around capital with a 20 percent share in the plan. Is that their exit would be within five years or seven years with an IPO. So are you waiting for like ideal market
conditions? Or is there, you know, in your mind, was the IPO preparing the company, preparing in a nice equity story? And so we hired a new CEO, Christine ISE, who took position last year. She already did that first year. Quite good. And now we are in the process of really preparing the equity story. I talked to me a little bit about China and the fact that it's reopening quite significantly. Does that impact?
Does it impact early or does it impact the price of coffee beans? It's not impacting really our performance because we used to sell a lot of coffee during the lockdown period at home. So China's growing double digits. It's a promising market also because there is more and more. It's a cross for illicit cultural cross-fertilization are getting these Western lifestyle habits, which is, of course, good for coffee. And we growing.
Yeah, I'm sweating because we're going to have a coffee afterwards and dry out in our barracks. I hope it's it's to the high quality. You were also telling me actually that the first. And when did we invent coffee or start drinking coffee in the medieval time in Europe. Continental Europe. We started drinking coffee around the half of the 17th centuries.
And the good news is that is the you know, it took modernity because before coffee, people were drinking beer for sanitary reasons, you know, because there was alcohol. So from 3, 4 beers, 3 per day to 3 for coffee. This is why we got elected and not accidentally. It started illuminates the cultural
evolution, scientific revolution, all the modern trends which created the society we are accustomed to. But now I mean, I love that. I mean, beer, you know, from beer to coffee, certainly, I'm sure made people a little bit more aware of. Certainly the news out there are people drinking less coffee, but higher quality coffee now. No, they typically don't drink less coffee also because there is a kind of set for adjusting those with the higher coffee means higher quality means lower caffeine. So this is why people have an incentive to incentives to drink more because they can have more coffee, you know, and more flavor. Okay. There you go. Sponsored by.
Thank you so much. I'm not even going to ask you about Starbucks having putting olive oil in their coffee, because I know that you need to be sedated. That was actually the chairman of caffeine. Coming up, we have an exclusive conversation with the chairman and chief executive officer of JP Morgan Chase, Jamie Diamond. He sits down with an exclusive conversation with Ed Hammond. This is Bloomberg. We on this long road and we are not necessarily knowing where the end of that road is going to be. My view is that we're going to see a
slowdown in the U.S. economy in the next few months and it will be significant. I think in many sectors we're already seeing, it doesn't appear as if the consumer is increasingly confident in their financial footing. There's still a lot of excess buffers in financial markets and among household, we still like banks because, you know, valuation is supportive. Balance sheets are supportive.
This is Bloomberg Surveillance early edition with Anna Edwards and Matt Miller. It's 10:00 a.m. in London, 5:00 a.m. in New York and 6:00 p.m. in Hong Kong. Our top stories today.
Credit Suisse loses one of its biggest backers, David Haro of Harris Associates. Sounds defense entire stake in the embattled Swiss bank. Citigroup plans to almost double its staff in Paris. The expansion comes as Citi and its rivals continue to grapple with life after Brexit and China sets a cautious growth target. That's likely to mean a smaller base for an ailing global economy. Welcome to Bloomberg Surveillance
Edition. I'm Anna Edwards in London with Matt Miller in New York. And Matt, I read with interest that there are 13 days ahead of us, which will be key for the direction of markets for the rest of this year. We're going to get jobs day, said Powell, speaking a Fed rate decision. CPI out of the US.
Lots of things to watch out for. Yes. As usual, the days ahead are important to the future of market prices. Let's take a look at what's going on right now in terms of U.S.
pricing futures going a whole lot of nowhere. S&P futures unchanged. I noticed that NASDAQ futures were up a little bit. Dow futures were down a little bit. But basically the idea is that the markets are paused now as they assess what China's weaker growth goal means. Obviously, it won't spur global growth as much as it would have. However, it's not going to spur
inflation in that case either. So we have to decide if this is a good thing or a bad thing. And we're going to talk about those goals. And the NPC, the U.S. 10 year yield is coming down two and a half basis points, but still at a relatively high level, close to 4 percent at 390 to sixty four. It is not 4 percent, though. So we raised over that level for really
the entirety of the curve last week. Now we've come back down. That's good news for stocks as we continue to come down. Yields offer less of a headwind to equities.
Crude is off a little bit, but seventy nine 12 is a relatively high price, especially considering the fact that you have lower expectations for Chinese growth. Does that mean that Chinese consumers are going to be taking up less often? It certainly doesn't look that way. It's not reflected in this price unless this is a demand issue.
It's interesting to see WTI trading so close to 80 and then Bitcoin right now down holding around twenty two thousand dollar level. But it's incrementally fallen over the last few sessions from basically twenty five grand to twenty two. Right now take a look at Asian markets. They're up in terms of the broader market. The Asia Pacific is up seven tenths of one percent.
The Hang Seng is a big gainer as well. You can see it gaining. Not a big gainer. It's a it's in positive territory, even with these lower growth targets gaining about two tenths of one percent right now. The Nikkei is up closed in Japan over 1 percent. So the bigger gains in Japan than we see in China. And right now, the US dollar
strengthening a bit against the yen at 136 0 7. And what do you see in Europe? Yeah. What we see in Europe is kind of mixed picture, actually.
If we look at the sector breakdown, he says sectors are in positive territory and the stock 600 is just in positive territory. So we are seeing moves a little bit higher and we're benefiting from some of the read across out of China, in some sense is not some basic weasel stocks. Those are weak. And we've seen iron ore coming down, copper coming down as a result of that modest growth target in a Chinese context, of course, around 5 percent coming to weaken the FTSE.
So that's weighing on mining stocks in London, which is hosting the London market. The consumer products and services sector, though, is doing pretty well. This in travel and leisure. And there does seem to be an expectation that perhaps the domestically driven, consumer driven, driven policy of the Chinese economy is where the future is going to be less. So manufacturing, even though this is,
of course, still a massive, massive manufacturing economy. But that's what a lot of guests have been talking about today. And interesting in that context to see that some of the consumer products, luxury names in Paris move higher, Brent crude. The other side of that story, in keeping with what we're seeing on basic resource stocks, we're seeing Brent crude come down as oil prices are retreating. That's just been through some of these detail with regards to China and to expectations for growth that Telecom Italia up by two point nine percent. We've been talking for decades about the best way to structure ownership of some of the infrastructure around the telecom sector.
And this is to do with landline networks. We're now seeing a big bidding battle, KKR going up against Macquarie in a in tandem with an Italian state backed lender. And so they're competing for the landline assets at Telecom Italia.
We keep an eye on that deal. And Credit Suisse in focus down by one point two percent today. They sell. So we've heard at the weekend that a big shareholder that he's been at Credit Suisse for two decades, at least Smart, has decided to sell his stake. Yeah. Huge news. I was honestly a little bit shocked when I read that David Harrow is the shareholder. He shared his view on Credit Suisse suites with Bloomberg last August. This has been a problem, child.
We've owned this bank literally since early 2001. In the first 10 years was a very good holding. I mean, it literally went from 20 to 60. 70 now what we should have done is just
sold it and that's it. Joining us now for more from Zurich is Bloomberg's finance reporter, Marian Hoff. DOMEIER, married investors clearly disappointed with this. One of the biggest backers bailing out. Yes, exactly, Matt.
This is a big deal. They've been, as you heard David Harrow say himself, they've been with the bank for a long time and they really stuck through with this bank after a couple of years of scandals and lacking profitability and huge losses. And ironically, they had been calling for a solution that stopped the investment bank from losing money for the broader bank. And the bank did do that. They said, OK, you know what? We're going to carve out this investment bank into C.S. First Boston.
Now, what we're what we understand is that, you know, Harris associate has said, you know what, we're going to sell out anyway, because the plan you've presented us is too cumbersome, too complicated and eating too much capital, that it's just not worth it for us. Stick by you anymore. Right. So that was the verdict. And they don't they don't they don't mince their words, certainly. And some of the language said to the FTSE over the weekend, now what supporters credit. We still have let them marry.
You know, we looking here at the Middle East. Exactly. So the main shareholder, so who has replaced Harris Associates is the Saudi National Bank.
They participated in the capital raise last year. And so they've now got about a 10 percent stake. So they're quite supportive. And then you can't forget about Q A Guitar Investment Authority that has also been with the bank for the last decade or so. And they they continue to hold a
significant, significant stake and continue to support the bank in their plans in restructuring. All right. Going to continue to obviously follow this story, not only credit squeeze, but what happens with First Boston, Mary, and you've got a great story out of the terminal about their Goldman Sachs partner structure as well. So we will follow the evolution of Credit Suisse as we watch. Also, UBS, Mary Ann Hunter Meyer. Thanks very much for that, UBS.
As I mentioned, cutting employee bonuses for last year by 10 percent to a three point three billion dollar slump. A billion dollars after a slump, I should say, in mergers and capital raisings. Meanwhile, the CEO, Ralph Hammers, gets a bump. So cutting bonuses for
the lower ranks, but giving the CEO more money. Great story. And in Paris, Citigroup, speaking of banks, are sticking with banks, I should say, is building a new trading floor as the Wall Street giant prepares to nearly double its staff in the French capital. Joining us now is Bloomberg finance reporter Jennifer Shery Ahn. So, Jenny, what is Citi doing in Paris? Why ramping up now? Yeah. You know, it's really all tied to Brexit
and the fact that they are still needing to put more and more traders and their risk books back out on the continent. So you see them adding traders, support staff, different operations folks, and they're looking to bring their staff in Paris up from about 130 to 250 in the coming years. Okay. And we're hearing a lot more. More and more about companies choosing to beef up operations outside of London. This is the Paris story.
We hear them in Frankfurt, in Dublin and Amsterdam. What does this mean, then, for London's status as a hub for finance? The comments? Yeah, I really don't think it's a winner take all. So I think, you know, London still is as a main hub for Citigroup and other banks, and there's still thousands and thousands of employees here. But you will see this this continued move out, especially as these banks slowly convince workers and really come to grips with these different regulations. You're going to see more folks in Paris, Frankfurt, Dublin, Milan, but London, you know, London is London. All right.
Jenny, thanks very much. Jenny Shery Ahn there reporting on some of the moves out of the city into Paris. Let's get to China, though. The big story maybe behind markets this morning. It is set a modest economic growth target, suggesting that there will be less of a boost to an ailing world economy.
Beijing's goal for GDP growth this year is around 5 percent modest for it. Economists expected the more ambitious target following a rebound in consumer spending and industrial output following the reopening basically, and the reversal of Covid zero and occurring. Our chief Asia economics correspondent joins us now. So is this bad news for the global economy end? I was listening, Christian Wheeler last month. Goldman Sachs this morning said there is good news here as well. It won't be driving inflation. Well, look, it's probably at the very least an attempt to manage expectations on the Chinese side. A lot of economists were talking about
five and a half percent for growth target. That's probably where Wall Street was. But the officials have come out with 5 percent and the thinking is that that target should be hit pretty easily, not because of the pickup in consumer and business sentiment on the back of Covid 0 coming June. And we've already had better data to
kick off the year. Remember last year, China missed its growth target by a long mile. Growth came in at 3 percent and had target to 5 1/2 percent. It's setting 5 percent this year. So that's being seen as something of a floor, an achievable target and an unintended. But authorities just to manage expectations for stimulus. OK. Enzo, what has been the messaging then on technology from China's NPC? Because the growth target was one thing that caught everybody's eye, but also a lot of big names in Chinese technology waiting to see what the regulatory environment looks like and whether they actually get their seats on the NPC still. Yeah, we'll be the tech tycoons.
Got a cold shoulder up to Congress, so to speak, but certainly the broad message around development and development ambitions to turn China into a technology super house. I mean, nothing that seems to be a central focus of these meetings. We had commentary from President Xi Jinping today through the state media doubling down on this idea. China has to move now to the next leg of its manufacturing development on its energy. That's code for it. It has to stand on its own two feet in the technology space. It cannot rely on the US, for example. Hardly a week goes by and I would
without getting news of U.S. export controls on key critical technology into China. China is now responding, trying to ensure that it can develop on its own, on its own two feet, not seen to be the message coming from the NPC that they are going to double down on DAX. And that's why we'll expect to see a lot more focus on developing, I think, over the coming years. All right, Andy, thanks very much. Bloggers end occur and their chief economics correspondent in Asia taking a look at what's going on in China in terms of its growth target. Let's take a look at some stocks we're watching in the premarket here in the US this morning. Shares of Hertz Global Holdings are
gaining after Barron's recommended buying the warrants as a good alternative to the stock. Nonetheless, investors are pushing the price of the underlying shares up in the premarket. Also watch shares in Tesla after the Eevee maker slashed prices on some of its most expensive models. Yes, again, this isn't the same old story. I think it's five thousand dollars on
the model S ten thousand dollars on the model X. This in the U.S. And Jefferies also raised its price target on the stock to two from 180. Clearly, they would surpassed the former target and watch U.S. listed Chinese stocks after Bloomberg reported that the Biden administration is nearing completion of an executive order that would restrict U.S. investments in China's technological advances, a move that risks dampening the already fraught relationship between the two countries. Anna?
Matt, coming up on the program, we will talk about the global economy. Nobel laureate Michael Spence joins us. He has thoughts on the post pandemic, global economy. We'll get to that conversation shortly.
And JP Morgan chairman and CEO Jamie Diamond sits down with beanbags ahead Hammond for an exclusive interview later today. That's life today at eleven forty a.m. New York time 440 Sonali Basak. Welcome back to Bloomberg Surveillance. This is the early edition we are looking at market pricing right now of a terminal rate of five point forty three percent. That's that would be the effective rate, meaning that the Fed would be raising to as high as five and a half percent. You can see that the Fed's median dot was for five and a quarter percent.
OK. The effective rate of five point one percent. We're going to use a whole bunch of different kinds of Fed funds pricing here. But the bottom line is the market is now going higher than the Fed had in its dot plot. And of course, Fed speakers have said
they may need to raise rates higher for longer. Ben Romm joins us now. Bloomberg's cross asset strategist to talk about what exactly this means Ben. Does the Fed definitely go now to five and a half percent? Is there a chance they push up to six? Monitor take. I do think that there is a chance that they may raise interest rates and a lot of will depend on what this week's non-farm payrolls radio show. Of course the consensus is that we're not going to get any anywhere near the RTS print that we got for January.
But still, the expectations are that we will get a pretty robust number if we get that robust number. And if oddly high earnings growth is pretty strong. And if the jobless rate is digging around two point forty point six. That's not going to bring the labor market into equilibrium. As we know, the Fed thinks that the labor market will get to take the Librium at four point six percent jobless rate. We are far off from those levels. So the Fed has to will
2023-03-09 01:56
