>> NEWSMAKERS AND MARKET MOVERS, THIS IS "THE PULSE" WITH FRANCINE LACQUA. TOM: GOOD MORNING AND WELCOME TO "THE PULSE," I'M TOM MACKENZIE AT THE BLOOMBERG TECH SUMMIT IN CENTRAL LONDON. EUROPEAN STOCKS ARE MIXED WITH BONDS EXTENDING A GLOBAL SELLOFF , AS TRADERS WEIGH A SLOWER PACE OF U.S. INTEREST RATE CUTS. SECRETARY OF STATE ANTONY
BLINKEN MAKES AN 11TH VISIT TO THE MIDDLE EAST AS THE U.S. RENEWS ITS PUSH FOR A CEASEFIRE BETWEEN ISRAEL AND IRAN-BACKED MILITANTS. SHARES IN S.A.P. JUMPED THE MOST SINCE JULY AS CLOUD REVENUE SORES AS EUROPE'S BIGGEST SOFTWARE COMPANY. WE WILL'S BETA THE CEO OF ANOTHER TECH GIANT SHORTLY AS WE HEAR FROM CHRISTOPHE FOUQUET, THE CEO OF ASML. LET'S CHECK IN ON THE MARKETS. A REASSESSMENT IN TERMS OF THE FED'S NEXT STEPS LEADING TO THAT GLOBAL BOND SELLOFF WE SAW A MARKS JUMP IN YIELDS YESTERDAY ACROSS U.S.
TREASURIES. HERE IS THE READ ACROSS ACROSS YOUR EQUITIES SPACE, U.S. FUTURES POINTING LOWER 0.2 PERCENT AFTER MODEST LOSSES YESTERDAY, NASDAQ 100 FUTURES POINTING TO A DROP OF 50 POINTS. EUROPEAN STOCKS OFFER BY 0.2% ACROSS THE STOXX 600. ON YOUR YIELD SPACE AT THE
FRONT END, THE U.S. TWO-YEAR TREASURY CURRENTLY AT .04, JUST ONE BASIS POINT IN THE SESSION TODAY. 150 POINT 96 ON THE JAPANESE YEN, WE HAVE SEEN SOFTNESS IN THE CURRENCY, DOWN 5% THE LAST 30 DAYS AS WE BUILD UP TO THAT ELECTION OVER THE WEEKEND. BRENT 73.88, DOWN 0.5%. GOLD UP AGAIN 0.5%, ANOTHER POSITIVE DAY FOR THE ELEMENTAL
AT 2733 PER TROY OUNCE. WALL STREET VETERAN ED YARDENI SAYS THE BEST OUTCOME FOR U.S. EQUITIES WOULD BE AN IMPASSE THAT LEAVES NEITHER PARTY WITH A DOMINANT POSITION.
HE SPOKE ON THE TREASURY MARKET CALLING FOR U.S. 10-YEAR YIELDS TO RISE TO 4.5% BUT SAYS THEY COULD REACH 5% IF EITHER PARTY WINS A SWEEPING VICTORY.
>> I THINK IF WE DO GET A SWEEP BY THE DEMOCRATS ARE THE REPUBLICANS, IT ALMOST DOESN’'T MATTER, EITHER WAY, WE WILL HAVE WIDER DEFICITS, MORE DEBT ACCUMULATING AND POSSIBLY INFLATIONARY CONSEQUENCES. TOM: FOR MORE, LET'S BRING IN BLOOMBERG'S VALERIE TYTEL TO GET ASSESSMENT OF HOW THE MARKETS ARE DIGESTING THESE EVOLVING VIEWS ON THE BOND MARKET. IS IT A WORRY OVER DEFICITS DRIVING THE TREASURY MARKET OR THE COMMENTARY FROM FOMC OFFICIALS? >> IT WAS INTERESTING TO HEAR FROM ED YARDENI IN THAT VIDEO SAYING IT DOESN'T MATTER WHO WINS THE ELECTION, EITHER WAY, THE DEFICIT WILL GROW AND 10-YEAR YIELDS COULD REACH 5% IF WE GET A SWEEP BY EITHER PARTY. EVEN TODAY WE ARE STILL TICKING HIGHER IN THE YIELD, NOW UP OVER 12 BASIS POINTS IN THE 10-YEAR SECTOR, BUT QUESTIONS OVER WHAT DRIVES THIS, IS IT THE TRUMP TRADE, THE FED SPEAKERS YESTERDAY, THIS WORRY ABOUT DEFICITS? MY NEXT CHART, I WANT TO SHOW YOU HOW THIS TRUMP TRADE HAS EVOLVED SINCE THE END OF SEPTEMBER. THIS BLUE LINE IS THE BETTING ODDS OF A TRUMP WIN. YOU CAN SEE THEY HAVE GRANTED HIGHER, PREDICTING MORE OF A CHANCE OF A TRUMP WIN. WE ARE SEEING STRONGER DOLLAR
AND U.S. YIELDS HAD HIGHER. PERHAPS IT IS THE TRUMP TRADE LEADING THE MARKETS AT THE MOMENT. WE'RE NOW 14 DAYS FROM THAT U.S. ELECTION. TOM: INDEED THE COUNTDOWN IS ON. THE TRUMP TRADE SEEMS TO
OVERSHADOW THE VIEWS FROM SOME OF THESE FOMC OFFICIALS. HOW HAS THE FED PRICING ADJUSTED? WE HAVE THE LIKES OF APOLLO COMING UP SAYING MAYBE THE FED JUST PAUSES IN NOVEMBER. HOW IS THAT KIND OF EXPECTATION BEING BUILT INTO MARKET VIEWS? >> IT WAS INTERESTING TO HEAR FROM TORSTEN SLOK TALKING ABOUT A NOVEMBER PAUSE. IF YOU LOOK AT THE PRICING, WE ARE STILL EASING AND TAKING OUT EXPECTATIONS FOR A FED CUT. JUST A FEW WEEKS AGO WE WERE PRICING TWO BACK-TO-BACK 25 BASIS POINT RATE REDUCTIONS. WE ARE NOW PRICING IN ONLY 40
BASIS POINTS OF CUTS THROUGHOUT YEAR-END. 22 BASIS POINTS FOR THIS MEETING IN NOVEMBER AND ONLY 17 FOR THAT MEETING IN DECEMBER. THE EXPECTATION IS AS WE GET THIS HOT SPRING OF U.S. DATA, PERHAPS THE FED DOESN'T NEED TO CUT AS AGGRESSIVELY. TOM: IF NOVEMBER IS NOT IN THE BALANCE, DECEMBER CERTAINLY IS.
VALERIE TYTEL WITH THE BREAKDOWN ACROSS MARKETS AND HOW THINGS ARE BEING ADJUSTED AROUND FED EXPECTATIONS. TO THE CORPORATE CONVERSATION, THE EARNINGS STORY NOW. THE S&P -- S.A.P. GETTING A BOOST IN THE SESSION
TODAY HELPING NEW THE DAX INTO POSITIVE TERRITORY. S.A.P. JUMPING MORE THAN 5% ON THE BACK OF THE EARNINGS STORY ON OTHER THIRD QUARTER THAT CAME IN ROUGHLY IN TERMS OF CLOUD REVENUE FOR THE BIGGEST SOFTWARE MAKER BY MARKET CAP IN EUROPE. S.A.P.'S Q3 REVENUES COMING IN AN INCREASE OF 25%. THE OTHER TAILWINDS FOR S.A.P.
ON THE FACT THAT THEY HAVE THIS FORWARD VIEW 12 MONTHS INTO THE FUTURE, IN TERMS OF COMMITMENTS AROUND BOOKINGS AND THAT INCREASED 25% AS WELL. INTERESTINGLY, S.A.P. ALSO RAISE THEIR OUTLOOK FOR CASH COMING THROUGH IN TERMS OF THE LONGER TERM FOR THE YEAR. UP TO FOUR BILLION EUROS ON THAT FRONT. CLOUD REVENUES BY THE WAY ARE GUIDED UP TO 27% AT THE HIGH-END. THE CEO SAYING YESTERDAY AROUND 30% OF THE DEMAND COMING THROUGH IN THE THIRD QUARTER FROM THEIR CUSTOMERS DID HAVE THAT AI LINK. CUSTOMERS WANTING THOSE AI
ANALYTICS SERVICES THAT S.A.P. PROVIDES. AND THE CFO TELLING ME TODAY HE SEES THAT GRADUALLY IMPROVING IN THE MONTHS AND QUARTERS AHEAD. THIS IS A COMPANY THAT HAS SEEN ITS MARKET CAP INCREASED BY 100 BILLION EUROS YEAR TO DATE. THAT IS PROVING SOME PROBLEMS
IN TERMS OF MARKET WEIGHT ON THE DAX BUMPING UP AGAINST THAT 15% CAP THAT IS IMPOSED BY GERMAN AUTHORITIES. THE CFO TELLING ME HE WOULD LIKE THAT REMOVED. THE STOCK UP MORE THAN 50% HERE TODAY. S.A.P. WITH THAT OUTWARD LOOK IN TERMS OF DEMAND IN CLOUD SERVICES, AS THEY PUSH FURTHER INTO THE SUBSCRIPTION MODEL FROM THE LICENSING MODEL, AND THAT IS STARTING TO PAY OFF. WE WILL HEAR FROM SOME OF THAT CONVERSATION WITH THE CFO OF S.A.P., I WAS SPEAKING TO HIM EARLIER, TAKE A LISTEN.
>> WE WOULD LIKE TO SEE THAT 50% CAP DISAPPEAR BECAUSE IT STRANGE DEMAND IN GERMANY BUT WE ARE FOCUSING ON THE LARGE POOLS OF CAPITAL AVAILABLE IN THE UNITED STATES. THERE IS A LOT OF RUNWAY FOR US TO GROW AND ATTRACT BOOM INVESTORS. WE WOULD LIKE NOT TO EXIT GERMANY BUT TO THE CONTRARY ATTRACT CAPITAL INTO GERMANY AND ON THAT FRONT I HAVE TO AGREE THE 15% CAP IN THE DAX IS NOT VERY HELPFUL. TOM: THE CFO OF S.A.P. SPEAKING TO ME EARLIER SAYING HE WANTS TO ATTRACT MORE CAPITAL INTO GERMAN MARKETS, HE IS NOT CONSIDERING DELISTING AND LISTING IN THE U.S., HE WANTS THAT CAPITAL ATTRACTED
INTO GERMANY BUT ONCE THAT CAP AT THE VERY LEAST ADJUSTED AS THE MARKET CAP OF THAT COMPANY IS + 260 BILLION EUROS RIGHT NOW. LET'S PIVOT TO THE NEWS OUT OF QUALCOMM, OF COURSE, THE CHIPMAKERS SO ESSENTIAL PARTICULARLY TO THOSE NON-APPLE IPHONES. THE NEWS FROM BLOOMBERG THAT THEY HAVE UNVEILED A NEW SMARTPHONE CHIP. THIS IS AN ADJUSTMENT TO ITS OWN DESIGNS. PREMARKET THIS. JUST OFF 0.3%. WE WILL SEE HOW THAT CHANGES THROUGH THE SESSION BUT AN UPDATE AND REMINDER OF THE FACT THAT QUALCOMM IS TRYING ON SOME MEASURES TO BE LESS DEPENDENT ON THE ARCHITECTURE AND DESIGNS FROM ARM, AND WE WILL HEAR FROM THE ARM CATL LATER TODAY FROM THE TECHNOLOGY SUMMIT.
SOME OTHER STORIES MAKING NEWS THIS TUESDAY. CHINA ON TRACK TO BECOME THE LARGEST MARKET FOR RUSSIA'S PIPELINE GAS THIS YEAR, AFTER EUROPE CUT IMPORTS FOLLOWING THE INVASION OF UKRAINE. BLOOMBERG I SHOULD INDICATE RUSSIA EXPORTED 26 BILLION CUBIC METERS OF RUSSIAN GAS TO CHINA IN THE FIRST NINE MONTHS OF 2024, NEARLY 40% MORE THAN A YEAR AGO. THE U.K. IS TO LOAN UKRAINE 2.3 BILLION POUNDS TO PURCHASE MILITARY EQUIPMENT PAID FOR BY PROFITS GENERATED BY FROZEN RUSSIAN ASSETS. THE FUNDING COMES AS PART OF A
WIDER $50 BILLION PACKAGE FROM G-7 NATIONS AND THE EU ANNOUNCED IN JUNE G-7 ALLIES HAVE COLLECTIVELY FROZEN $280 BILLION OF RUSSIAN CENTRAL BANK ASSETS. WITH THE MAJORITY IN EUROPE. PAST A NEW LAW TO OVERCOME A COURT RULING THAT BLOCKED THE PRIME MINISTER'S PLAN TO SEND ASYLUM-SEEKERS TO ALBANIA.
12 MIGRANTS WERE RETURNED LAST WEEK AFTER A COURT SAID THEY ORIGINATED FROM COUNTRIES THAT CANNOT BE RECOGNIZED AS SAFE. AT LEAST CABINET APPROVED A LIST OF 19 SO-CALLED SAFE COUNTRIES TO ALLOW THE PLAN TO CONTINUE. THE NEW CEO OF PROSUS SAYS ADJUSTED PROFIT AT ITS COMMERCE DIVISION IS EXPECTED TO SURGE 950% THIS FISCAL YEAR.
HE TOLD BLOOMBERG HE IS DEPLOYING ARTIFICIAL INTELLIGENCE ACROSS THE BUSINESS AS HE RESHAPES A COMPLICATED BUSINESS LEGACY. WE WILL HEAR MORE FROM HIM LATER ON IN THE SHOW. LET'S BRING YOU THAT CONVERSATION LIVE WITH THE CEO OF ASML, CHRISTOPHE FOUQUET, SPEAKING TO BLOOMBERG'S TOM GILES. WE CAN LISTEN IN NOW AFTER THAT SURPRISE CUT TO THE OUTLOOK FROM ASML.
>> BUT LAST WEEK, YOU HAD TO DO SOME EXPECTATION RESETTING IN TERMS OF BOOKINGS, IN TERMS OF YOUR OUTLOOK FOR 2025, AND HOW LONG THE CHIP RECOVERY WILL EXTEND. YOU SAID ON THE CALL, TODAY, WITHOUT AI THE MARKET WOULD BE VERY SAD IF YOU ASK ME. THAT DEFINITELY SPREAD SOME SADNESS IN THE MARKET AND THE STOCK PRICE. COULD YOU GIVE US A SENSE, WHEN YOU TALKED ABOUT THE NEW EXPECTATIONS, YOU FOCUS ON A COUPLE THINGS. CUSTOMERS LIKE SAMSUNG AND INTEL, BUT ALSO CHINA, SO I'M WONDERING IF YOU COULD GIVE US A SENSE OF ON BALANCE, HOW MUCH OF YOUR RESETTING EXPECTATIONS WAS RELATED TO CHANGES IN CHINA VERSUS WEAKNESS IN THE LARGE CUSTOMERS I MENTIONED. >> LAST WEEK, WE SAID A FEW THINGS.
THE FIRST THING WE SAID WAS THAT WE STILL SEE AI AS A HUGE OPPORTUNITY FOR THE INDUSTRY. AND WE STILL SEE UPSIDE ON THE SHORT-TERM. AI HAS BEEN WITH US NOW FOR A COUPLE OF YEARS AND HAS CREATED A LOT OF EXCITEMENT. LIKE ALL OUR PEERS IN THE INDUSTRY, I BELIEVE THAT AI WILL BRING TREMENDOUS SUPPORT FOR THIS INDUSTRY. THAT IS THE FIRST THING. LONG-TERM, AI WILL BUILD UP A REAL STRONG OPPORTUNITY FOR THE INDUSTRY.
IN THE SHORT-TERM TERM, YOU ARE AWARE, NOT EVERYONE IS SURFING YET ON THE AI WEB. SOME COMPANIES HAVE BEEN DOING WELL, TSMC, BECAUSE THEY ARE PROVIDING FIRST THE PRODUCT, SECOND THE PROCESS THAT WILL MANUFACTURE THE PRODUCT. SO THEY ARE VERY STRONG. I'M SURE YOU WILL SEE THAT IN THE WEEKS TO COME, VERY STRONG DEMAND. WHAT WE ALSO SAID IS THAT NOT EVERY SEMICONDUCTOR MANUFACTURER IS INVOLVED IN AI. SOME OF THEM ARE DOING CHIPS FOR MORE TRADITIONAL APPLICATIONS, MOBILE, PC, AUTOMOTIVE.
THAT PART OF THE MARKET IS NOT RECOVERING AS QUICKLY AS WE HOPED. IT HAS RECOVERED, SO WE SEE PROGRESS, AND PEOPLE ARE REPORTING THAT BUT IT IS SLOWER THAN A LOT OF IS EXPECTED. THAT CONCERNED QUITE A FEW COMPANIES, ALL THE COMPANIES THAT TODAY ARE NOT DIRECTLY BENEFITING FROM THE AI BOOST. THAT IS THE SPLIT OF THE MARKET WE SEE TODAY. >> DOES THAT MEAN WE SHOULDN'T EXPECT FULL RECOVERY UNTIL 2026? >> THAT IS ALWAYS DIFFICULT TO SAY. IT IS SOMETHING WE WATCH EVERY QUARTER.
LAST WEEK, PEOPLE OR MAYBE DISAPPOINTED WE DIDN'T GIVE MORE HEADS UP, BUT THAT IS SOMETHING WE JUST KEEP WATCHING. THE LAST THREE MONTHS FOR EXAMPLE WE HAVE SEEN THAT PEOPLE ARE STARTING TO PUSH THE BREAK. WHEN DO THEY PUSH THE ACCELERATOR AGAIN WE DON'T KNOW BECAUSE WHEN YOU BECOME CAUTIOUS IT USUALLY TAKES A BIT OF TIME BEFORE YOU LOOK AT THE LONGER-TERM AGAIN. BUT LONG-TERM, WE SEE GROWTH, WE SEE TREMENDOUS OPPORTUNITY.
WHICH MEANS THAT AT SOME POINT IN TIME, THIS HAS TO COME. 2025 BY THE WAY WE STILL SEE AS A GROWTH YEAR FOR THE INDUSTRY, FOR ASML. THE GROWTH IS NOT AS HIGH AS A LOT OF PEOPLE EXPECTED, BUT STILL A GROWTH YEAR.
WE ALSO EXPECT 2026 TO BE A GROWTH YEAR BUT IT IS TOO EARLY TO QUANTIFY THAT IN HIGH PRECISION. >> I WANT TO TALK A LITTLE ABOUT CHINA. AT ONE STAGE, THEY ACCOUNTED FOR ALMOST HALF OF TOTAL REVENUE. YOU SHARED WITH THE MARKET THAT
WE HAVE TO THINK ABOUT CHINA IN ITS HISTORICAL PERSPECTIVE, WHERE IT ACCOUNTED FOR SOMETHING MORE LIKE 20% OF TOTAL REVENUE FOR U.S. COMPANY. I'D LIKE TO GET A SENSE FROM YOU OF HOW MUCH OF THAT CHANGING VIEWPOINT ON CHINA IS COMING FROM WEAKNESS INTERNALLY VERSUS LIMITS ON WHAT CHINESE MANUFACTURERS CAN BUY GIVEN EXPORT CONTROLS? >> FIRST, A STEP BACK. IF YOU LOOK AT CHINA, WE JUST TALKED ABOUT AI, IT IS VERY ADVANCED MANUFACTURING AND CHIPS. CHINA FOR A FEW YEARS NOW IS FOCUSING ON WHAT WE CALL MAINSTREAM SEMICONDUCTOR.
WE USED TO TALK ABOUT THE IOT, ALL THOSE CHIPS YOU HAVE IN ALL THE PRODUCT MAKING THOSE PRODUCTS SMARTER, THAT'S THE TYPE OF CHIPS CHINA IS BASICALLY MANUFACTURING TODAY. ONE PART OF THE REASON FOR THAT IS THE RESTRICTION THAT HAVE BEEN APPLIED ON EV, AS YOU KNOW, WHICH ARE PREVENTED CHINA TO MOVE TO ADVANCED MODE. THE FOCUS OF CHINA IS ON MAINSTREAM SEMICONDUCTOR'S. THE DEMAND FOR THAT HAS BOOMED IN 2021, 2022. AS A RESULT THE DEMAND IN CHINA
HAS BOOMED AS WELL. 2021, 2020 TWO WAS THE TIME IF YOU RECALL WHERE DEMAND WAS EXTREMELY HIGH AND ASML WAS STRUGGLING TO DELIVER TOOLS TO EVERYONE. THEREFORE WE COULD NOT DELIVER A LARGE PART OF DEMAND IN CHINA. BACKLOG IN CHINA GREW. 2023 THE REST OF THE MARKET SOFTENED. WE GOT TOOLS WE CAN SHIP TO
CHINA. SAME IN 2024. THE LEVEL OF BUSINESS WE HAD WITH CHINA IN 2023 AND 2024 WAS MORE OF THE RESERVES OF THE NONDELIVERABLE CAPACITY IN 2021 THAN ANYTHING ELSE. WE ALWAYS EXPLAINED THAT OUR QUARTER AT 50% OF THE BUSINESS IN CHINA WAS NOT NORMAL. THIS WAS A PEAK RESULTING FROM A LACK OF DELIVERY BEFORE. THE NORMAL BUSINESS IN CHINA IS AROUND 20-25% AND THAT IS THE NORMAL DEMAND RELATED TO MAINSTREAM SEMICONDUCTOR AND I THINK WE GO BACK TO THIS NUMBER OVER TIME.
>> BUT THERE IS SOMETHING ARTIFICIAL ABOUT THE WAY WE THINK ABOUT CHINA AS A PURCHASER OF EQUIPMENT LIKE ASML'S IN THE SENSE THAT MANY COUNTRIES AROUND THE WORLD, U.S. PRINCIPALLY, HAVE BEEN EXERTING EXPORT CONTROLS ON THE CONTRARY. ARE THOSE CONTROLS GOING TO BECOME EVEN MORE STRINGENT? FOR EXAMPLE, CHINA IS NOT ABLE TO BUY YOUR MOST ADVANCED MACHINES, IS IT POSSIBLE THOSE RESTRICTIONS COULD EXTEND TO THE DU V LEVEL WHICH IS USED FOR MORE MAINSTREAM PRODUCTS? >> YES, IF YOU GO BACK TO THE ROOT CAUSE, THE PRIME MODIFICATION -- MOTIVATION OF EXPORT CONTROL IT WAS TO PREVENT CHINA TO HAVE ACCESS TO ADVANCED TECHNOLOGY. BY NOT HAVING IT IN CHINA, WE PRETTY MUCH STOPPED THE ABILITY OF CHINA TO GO BEYOND THE FIVE MAY BE THREE MAIN OHMMETER -- MAIN OHMMETER MODE.
BUT FUNDAMENTALLY BY NOT HAVING EUV, WE HAVE PLACED CHINA 10 TO 15 YEARS BEHIND WHEN IT COMES TO ADVANCED TECHNOLOGY. WE ALWAYS TALK ABOUT CHINA. WE USUALLY FORGET TO MENTION THAT WHILE RESTRICTIONS HAVE BEEN APPLIED ON CHINA, A LOT OF WORK HAS BEEN DONE WITH OTHER PLAYER IN THE INDUSTRY, INTEL, TSMC, SAMSUNG ON THE MOST ADVANCED EUV TECHNOLOGY AS WE KNOW IT TODAY. THERE HAS BEEN A LOT OF WORK DONE EVERY SINGLE DAY TO CONTINUE TO WIDEN THIS TECHNOLOGY CGAP AND EUV IS A KEY ELEMENT TO DO ADVANCED TECHNOLOGY. INTEL HAS PROVEN TO THE WORLD WITHOUT EUV, LIFE WAS GETTING IMPOSSIBLE.
THAT IS ALSO TRUE FOR CHINA. THIS LIMITS PART OF THE ACTIVITY THERE. >> BASED ON YOUR INTERACTION WITH THE PRIME MINISTER OF THE NETHERLANDS, WITH THE FOREIGN MINISTRY, IS IT YOUR EXPECTATION THAT THE RESTRICTIONS WILL BECOME EVEN MORE LIMITING ON CHINA'S ABILITY TO PURCHASE MACHINERY LIKE ASML'S? >> IF YOU LOOK AT THE GEOPOLITIC LANDSCAPE, IT'S CLEAR THE UNITED STATES WILL CONTINUE TO APPLY PRESSURE ON THEIR ALLIES FOR MORE RESTRICTIONS. THE DISCUSSION WE HAVE WITH THE DUTCH PRIME MINISTER, WITH THE EUROPEAN POLITICAL LEADER, AT THE END OF THE DAY, WE ARE A EUROPEAN TECHNOLOGY CHAMPION COMPANY.
THE QUESTION IS WHAT IS RIGHT FOR THE NETHERLANDS, WHAT IS RIGHT FOR EUROPE, AND AS A RESULT WHAT IS RIGHT FOR ASML? SO WHAT RESTRICTION MAKE SENSE WHEN IT COMES TO NATIONAL SECURITY WHICH HAS BEEN THE PRIME ARGUMENT, AND WHERE DOES IT STOP, BECAUSE A LOT OF THE FOCUS IN CHINA TODAY IS ON MAINSTREAM SEMICONDUCTOR. AND THIS IS VERY DIFFERENT FROM AI. THAT IS THE DISCUSSION WE HAVE. THE PRESSURE WILL CONTINUE TO BE THERE. BECAUSE IF YOU LOOK AT THE
LANDSCAPE, THAT'S WHAT IT IS. BUT I THINK THE DISCUSSION WILL GET MORE SOPHISTICATED OVER TIME. THE STAKES WILL BECOME HIGHER. I THINK A COUNTRY LIKE THE NETHERLANDS, ALL OF EUROPE WHERE AGAIN WE BELONG TO, WE'RE MORE AND MORE GOING TO DISCUSS WHAT MAKES SENSE FOR US. >> DOES IT MAKE SENSE FOR THE EUROPEAN UNION TO WORK IN SUCH CLOSE CONCERT WITH THE U.S. IN MAKING IT DIFFICULT FOR CHINA TO GET ACCESS TO THESE MACHINES? AT WHAT STAGE, AND TO DO YOU FIND YOURSELF WISHING THAT THE DUTCH GOVERNMENT, AND MAYBE THE EU GOVERNMENT WOULD PUSH BACK HARDER ON SOME OF THE RESTRICTIONS THE U.S.
WOULD LIKE YOU TO IMPOSE? >> AS A EUROPEAN CITIZEN, DUTCH RESIDENT, NONCITIZEN AS YOU KNOW, I'D LIKE TO KNOW THAT THEY DO WHAT IS RIGHT FOR EUROPE AND THE NETHERLANDS. THAT'S THE MOST IMPORTANT THINGS. WE ALWAYS SAID AT ASML, WE DON'T MAKE THE LAW, I'M NOT A POLITICIAN I DON'T KNOW HALF OF WHAT THEY KNOW. AND THERE MAY BE GOOD REASON TO RESTRICT. AND IF THERE IS A GOOD REASON TO DO SO, AND OUR GOVERNMENT BELIEVE THAT, WE WILL GO WITH IT OF COURSE. WHAT IS VERY IMPORTANT IS TO
HAVE THE DISCUSSION WITH THEM, SO THEY UNDERSTAND WHAT WE DO. MAYBE UNDERSTAND THE INDUSTRY BETTER AND THEY ARE BETTER EQUIPPED TO DECIDE WHAT IS GOOD OVERHAUL FOR THE EUROPEAN COUNTRIES AND NETHERLANDS. >> BASED ON YOUR INTERACTION WITH YOUR CUSTOMERS IN CHINA AND GLOBALLY, IS IT YOUR PERCEPTION THAT THE MOTIVATIONS FOR EXPORT CONTROLS ARE TRULY ABOUT NATIONAL SECURITY INTERESTS AND REGIONAL SECURITY VERSUS ECONOMIC COMPETITION? MAMA THE WORDS, HOW MUCH IS THIS ABOUT KEEPING CHINA FROM BECOMING ECONOMICALLY MORE COMPETITIVE WITH THE REST OF THE WORLD VERSUS THESE ARE LEGITIMATE SECURITY THREATS? >> YOU ALMOST HAVE A RHETORICAL QUESTION HERE. WHAT YOU SEE HAPPENING IS MORE AND MORE PEOPLE ARE ASKING THEMSELVES THIS EXACT QUESTION. IF YOU LOOK AT THE PRESS, THERE IS A REAL DEBATE HAPPENING. IS IT REALLY ABOUT NATIONAL
SECURITY? WE KNOW THAT THERE IS A STRONG ECONOMIC COMPETITION BETWEEN THE U.S., EUROPE, CHINA. WE SEE IT EVERYWHERE. PEOPLE QUESTION HOW MUCH OF THAT HAS A PLAY IN THE DECISION PRAY THE OTHER DEBATE YOU START TO SEE WHICH IS RELATED IS, DOES IT HELP US, OR DOES IT HURT US? A LOT OF COMPANIES IN THE U.S. START TO QUESTION IS THAT A GOOD THING FOR US? THAT IS THE KEY DEBATE TO HAVE BECAUSE AT THE END OF THE DAY, WE NEED OUR GOVERNMENTS TO DO THE RIGHT THING FOR THEIR PEOPLE. I THINK THOSE DEBATES ARE FAR MORE, ACTIVE, FAR MORE LIVELY THAN THEY WERE TWO YEARS AGO AND I THINK IT IS VERY GOOD. BECAUSE IT BRINGS US TO A MORE RATIONAL DISCUSSION AND MORE BALANCED DECISION MOVING FORWARD. WE CAN ONLY WELCOME DEBATE IN SUCH COMPLICATED ISSUES.
>> I WANT TO BRING THINGS A LITTLE MORE LOCAL TO THE NETHERLANDS WHERE ASML DISCUSSED WITH THE DUTCH CABINET IT WANTS TO OPERATE SUCCESSFULLY IN THE COUNTRY. YOUR PREDECESSOR SAID IF THE NETHERLANDS SHUTS DOWN AND WE CANNOT GET IMMIGRANTS OR FOREIGN STUDENTS, THEN FINE, YOU SHOULD ACCEPT THE CONSEQUENCES. THE DUTCH GOVERNMENT TO ITS, CREDIT SET UP A TASK FORCE AND WILL SPEND BILLIONS OF EUROS IN THE EINDHOVEN REGION TO KEEP ASML AT HOME. IS THAT ENOUGH PARTICULARLY IN A WORLD WHERE THERE IS A COALITION LED BY A FAR-RIGHT LAWMAKER THAT IS LOOKING TO IMPLEMENT THE STRICTEST EVER ANTI-IMMIGRATION POLICIES. THE CABINET IS WORKING ON AREAS TO RESTRICT LABOR MIGRATION. YOU ARE DEPENDENT ON LABOR FROM
NOT JUST DOMESTIC BUT AROUND THE WORLD. HOW CONCERNED ARE YOU ABOUT THE FORCES AT WORK BRINGING THIS ANTI-IMMIGRANT RHETORIC AND POLICY TO THE DUTCH GOVERNMENT? >> HERE ALSO YOU SHOULD TAKE A STEP BACK. THIS IS ALMOST AN ISSUE FOR EUROPE. IT IS HAPPENING IN THAT HELLENES AND MANY COUNTRIES AS WE SPEAK. >> ITHAPPENING IN THE U.S. -- >> WHAT WE TRIED TO DO IN OUR DISCUSSION, EVERY GOVERNMENT WANTS TO HAVE COMPANIES LIKE ASML IN EUROPE, IN THE NETHERLANDS.
EVERYONE WANTS THAT, THE MORE, THE BETTER. BUT TO HAVE A OF ANY LIKE THIS, YOU NEED A FEW THINGS. ACCESS TO CAPITAL, PEOPLE, ENERGY, ACCESS YOU NEED A PLACE TO BUILD YOUR FACTORY. ALL THOSE CONDITIONS HAVE TO BE THERE. IF YOU WANT TO COMPETE WITH
OTHER COUNTRIES, CHINA, THE U.S., WHATEVER, ONLY YOU NEED THOSE CONDITIONS BUT THOSE CONDITIONS HAVE TO BE AS GOOD AS POSSIBLE SO YOU CAN BE COMPETITIVE. BECAUSE THIS INDUSTRY IS EXTREMELY COMPETITIVE. AND NO ONE SHOULD EVER TAKE ANY SUCCESS FOR GRANTED. OF COURSE, THE STORY OF ASML IS GREAT BUT ONLY AFTER 40 YEARS OF VERY HARD WORK. THIS IS SOMETHING YOU HAVE TO
PRESERVE. WE NEED ALL THOSE CONDITIONS TO BE THERE. THE DRAGHI REPORT WAS A GOOD WAY TO SUMMARIZE WHAT THE ENTIRE INDUSTRY IN EUROPE THANK. -- THINK. AND OUR GOVERNMENT HAS TO WORK
ON THAT. OF COURSE, THERE IS A BIT OF IMMIGRATION IS THE TOPIC OF THE DAY, THAT IS THE WAY TO GET PEOPLE'S ATTENTION. WHAT WE HAVE SAID IS WE HAVE BUILT OUR COMPANY WITH MORE THAN 100 NATIONALITIES.
BRINGING TALENT FROM EVERYWHERE HAS BEEN A NATURAL CONDITION FOR SUCCESS AND THIS HAS TO CONTINUE. THE GOOD NEWS IS I THINK PEOPLE ARE LISTENING. WHEN YOU GET DOWN TO BUSINESS, PEOPLE ARE MORE REASONABLE THAN WHEN THEY RUN A CAMPAIGN OR TRY TO GET ELECTED. >> DOES IT MAKE SENSE FOR ASML TO CONSIDER LOCATING FOR RELOCATING SOME OPERATIONS OUTSIDE OF THE NETHERLANDS AS A CONTINGENCY MEASURE TO ENSURE THAT YOU HAVE ACCESS TO THOSE INGREDIENTS YOU MENTIONED THAT OVER 40 YEARS HAVE MADE ASML A GREAT COMPANY? >> THE THRESHOLD TO DO THAT IS PRETTY HIGH FOR US. WE ARE DEVELOPING EXTREMELY SOPHISTICATED MACHINES. TECHNOLOGY IN FACT IS A COMBINATION OF MANY TECHNOLOGIES THAT WE HAVE TO BRING TOGETHER.
OUR SUPPLY CHAIN IS 80% OF IT AROUND THE NETHERLANDS, GERMANY, FRANCE, ITALY VERY CLOSE. OUR ENGINEER, OUR R&D IS FULLY IN NETHERLANDS, WE HAVE A CENTER IN THE U.S. FOR THE LARGE PART IS IN THE NETHERLANDS.
BECAUSE OF THE COMPLEXITY OF ARCHEWELL'S, WE WANT TO -- OUR TOOLS, YOU WANT TO KEEP RESEARCH DEVELOPMENT CLOSE TO OUR MANUFACTURING CENTER. WHAT YOU MAY NOT REALIZE IS EVERY TWO YEARS, WE MAKE A NEW TO STEP ON OUR MACHINES. WE HAVE TO IMPROVE THEM EVERY COUPLE YEARS. EVERY TWO YEARS WE BUILD NEW MACHINES.
AND WE HAVE TO TEACH OUR MANUFACTURING PEOPLE VERY QUICKLY TO BUILD THOSE NEW MACHINES. THERE HAS BEEN A LONG-LASTING PRINCIPAL AT ASML THAT WE WANT TO KEEP R&D AND MANUFACTURING TOGETHER AND WE WOULD LIKE TO DO THAT IN THE NETHERLANDS BECAUSE THIS IS WHERE WE ARE. THE THRESHOLD TO CHANGE THAT I THINK IS VERY HIGH. I WILL SAY NEW THINGS LIKE GEOPOLITICS GIVEN US EVEN MORE REASON TO STAY IN THE NETHERLANDS, SO WE CAN BUILD THIS STRONG RELATIONSHIP WITH THE DUTCH GOVERNMENT, WITH THE EUROPEAN COUNTRIES AROUND US TO ALSO GET THE SUPPORT OF THOSE GOVERNMENTS IN OUR ACTIVITIES.
>> IT'S NOT REALLY BEING CONSIDERED TO LOCATE SOME OPERATIONS ELSEWHERE? >> WE HAVE OPERATIONS ELSEWHERE, BUT WE WILL ONLY GROW THOSE OPERATIONS BASED ON THE ACTIVITY WE HAVE IN THE DIFFERENT COUNTRIES. WE DON'T AT ALL CONSIDER TO MOVE A LARGE PART OF OUR OPERATION OUTSIDE OF THE NETHERLANDS. NOT AT ALL. >> EUROPEAN UNION HAS TENS OF BILLIONS OF DOLLARS PLAN TO EXPAND LOCAL MANUFACTURING CAPACITY WITH THE GOAL OF DOUBLING OUTPUT FROM THE REGION TO 20% OF THE GLOBAL MARKET BY 2030. IN YOUR ESTIMATION, IS THIS A REALISTIC EXPECTATION, AND WHAT ARE THE HURDLES THE REGION NEEDS TO OVERCOME? THIS IS THE IDEA OF INCREASING THE REGION'S CAPACITY TO BE A BIGGER PRODUCER OF CHIPS TO THE GLOBAL MARKET.
>> IF YOU WANT TO ACHIEVE THIS KIND OF TARGET, YOU HAVE TO BUILD CAPACITY. IF WE LOOK AT WHERE WE SHIP OUR SYSTEMS TODAY, MOST OF OUR SYSTEMS, 80% ARE STILL BEING SHIPPED TO ASIA. ASIA REMAINS FOR QUITE A FEW YEARS I WOULD SAY THE KEY MANUFACTURING PLACE FOR SEMICONDUCTORS. TO GET TO 30% SHARE OF THE OUTPUT, YOU HAVE TO TAKE MORE THAN 30% OF THE TOOLS THAT ARE SHIPPED. WE DON'T SEE THAT YET.
MOST OF THE PROGRESS IS NOT AS FAST AS SOME PEOPLE HOPED. YOU HAVE ALSO HEARD SOME DELAYS IN THE FACTORIES IN THE U.S. THIS IS POINTING TO SLOWER EXECUTION. YOU ONLY CAN START TO BELIEVE THE TARGET WILL BE ACHIEVED WHEN THE CAPACITY BUILD IS EXCEEDING 30% OF THE TOTAL WORLDWIDE CAPACITY WHICH IS NOT THE CASE YET. >> IN OUR INTRODUCTION, CAROLINE REMINDED US THAT WE HAVE AN ELECTION IN THE U.S. IN A COUPLE OF WEEKS. YOU MIGHT'VE HEARD ABOUT IT.
IT IS VERY CLOSE SO FAR IN THE POLLS, BUT WOULD YOU EXPECT CONDITIONS FOR THE GLOBAL CHIPMAKING WORLD TO BECOME BETTER UNDER ONE CANDIDATE VERSUS THE OTHER IN THE U.S.? >> LIKE EVERYONE ELSE, I FOLLOW THE ELECTION IN THE U.S. YOU CAN SEE A LOT OF POLARIZATION IN THE DEBATES. THERE IS ONE TOPIC THAT STILL IS I WOULD SAY SHARED BY BOTH SIDES IN THE U.S., IT IS CHINA. THAT IS ONE ELEMENT OF
AGREEMENT. WE DON'T EXPECT MAJOR CHANGES. WE EXPECT THE PRESSURE ON EXPORT CONTROLS IN CHINA TO REMAIN. TO TELL YOU EXACTLY HOW THIS WILL PLAY OUT, I DON'T KNOW TO BE HONEST. >> DO YOU THINK IT WILL BE RATCHETED UP? YOU TALK ABOUT PRESSURE WILL REMAIN, DO YOU EXPECT IT TO BE RATCHETED UP? >> THE PRESSURE WILL BE THERE. IF ONE CANDIDATE MAY WANT TO BE MORE THAN THE OTHER, I DON'T KNOW. LIKE I SAID, THAT PROBABLY WILL NOT COME WITHOUT A DEBATE, AND I THINK WHAT WE HAVE SEEN HAPPENING NOW FOR A FEW MONTHS.
>> AT LIMERICK TECH, WE LIKE TO TALK ABOUT NEW PRODUCTS, YOU HAVE A NEW HIGH NA EUV WE SHOWED AN IMAGE EARLIER, $380 MILLION, ONE OF OUR SIZES AND SCOPES, IT IS THE SIZE OF ABBAS OR THE SIZE OF A SMALL AMSTERDAM FLAT. SOME OF ASML'S CUSTOMERS HAVE RAISED CONCERNS ABOUT THE PRICE TAG. ONE SVP AT A MAJOR CUSTOMER SETE I LIKE THE NAUV'S CAPABILITY, I DON'T LIKE THE STICKER PRICE, ARE YOU CONCERNED THE PRICE TAG COULD AFFECT DEMAND? I AM ASKING AS SOMEONE WHO HAS ABOUT 100% MARKET SHARE, SO I UNDERSTAND. >> I HAD THE QUESTION MANY TIMES THE LAST THREE MONTHS. I ALWAYS GAVE THE SIMPLE ANSWER. WE NEVER BUILD A PRODUCT IN
ASML WITH THE IDEA THAT THE NEW PRODUCT WILL BE MORE EXPENSIVE THAN THE PREVIOUS ONE. OF COURSE, THE PRICES HIGHER BUT THE PRICE OF ALL OUR PRODUCTS HAS BEEN HIGHER OVER TIME. THE REASON IS THE VALUE THEY BRING IS EVEN HIGHER. THE REASON WHY WE MAKE OUR NA IS TO ENABLE THE CUSTOMER TO LOOK AT MORE DESIGNS, TO LOOK AT THE ABILITY TO GO DOWN ANOTHER TWO OR THREE OR FOUR NODES WHICH FOR THIS INDUSTRY AT THE END OF THE DAY IS THE HIGHEST VALUATION EVER GENERATE. A CUSTOMER TOLD ME AI CAN HAPPEN TODAY BECAUSE WE HAVE THIS THREE NANOMETER NODE. THE PREVIOUS NODE WOULD'VE BEEN
TOO EXPENSIVE, TOO MUCH ENERGY CONSUMPTION. FOR AI TO REALLY SPIN OU LIKE WE DREAM OFT, YOU NEED ANOTHER TWO OR THREE NODES TO MAKE SURE THE COST GOES DOWN AND THE ENERGY CONSUMPTION GOES DOWN. INA IS GOING TO CONTRIBUTE TO THAT. WHAT WE DREAM OF THE NEXT FIVE TO 10 YEARS WILL CONTRIBUTE TO THAT. THE VALUE OF INA IS TO CONTINUE TO ENABLE ALSO TO GO WITH OF COURSE NOWADAYS A BUNCH OF OTHER TECHNOLOGIES BUT THIS IS HUGE VALUE. I WAS DISCUSSING WITH CAROLINE, AI IS COMING, IT IS A BIG BANG, RIGHT, AND WE KNOW THAT AS LONG AS WE CONTINUE TO DRIVE THE INDUSTRY, THERE WILL BE ANOTHER BIG BANG AT SOME POINT WHICH NO ONE CAN START TO DREAM OF BUT THIS HAS BEEN THE STORY OF THIS INDUSTRY. THIS IS WHAT INA WILL
CONTRIBUTE TO. CUSTOMER WILL ADOPT INA WHEN THE VALUE OF IT IS RIGHT. AND THEY WILL CONTINUE TO USE ALL THE OTHER LITHOGRAPHY PRODUCTS OF COURSE AT THE SAME TIME. >> MY LAST QUESTION BEFORE I LET YOU GO.
WE SAW DURING THE PANDEMIC WHAT CAN HAPPEN WHEN WE LOSE CONTROL OVER THE SUPPLY CHAIN. DO YOU FEEL LIKE IT IS NECESSARY FOR ASML TO SOMEHOW USE ITS CASH PILE TO DO MORE TO GAIN CONTROL OVER THE SUPPLY CHAIN? HAVE A LITTLE MORE POWER IN DECISION-MAKING, WHETHER THAT WOULD BE MAKING ACQUISITIONS OR INCREASING A STAKE IN ONE OF YOUR SUPPLIERS? >> IT IS A GOOD QUESTION BECAUSE WE SAID THE MARKET IS GOING TO BE LESS THAN EXPECTED IN 20 35. THAT PART ASML HAS NOT STARTED BECAUSE IT TAKES TIME TO THAT. -- DO THAT. WE HAVE HAD DISCUSSION WITH OUR
SUPPLIERS. MOST OF OUR SUPPLIERS ARE PARTNERS. ZEISS IS A TO PARTNER THEY UNDERSTAND OUR INDUSTRY.
WE CALL THE RELATIONSHIP WITH ZEISS, TWO COMPANIES, ONE BUSINESS. THE BUSINESS IS THE SAME AND WE HAVE A BIT OUR DIFFERENT WAYS TO DO THINGS. I'M TRYING TO SAY FOR MOST OF OUR SUPPLIERS, WE HAVE A STRONG ALIGNMENT TO MAKE SURE WE CAN MEET THE SUPPLY CHAIN. ONLY IN VERY RARE EXCEPTION, WE ARE ACQUIRING SOME OF THE SUPPLIERS. THE REASON IS THEY CANNOT SCALE
FAST ENOUGH. THEY CANNOT INVEST TO THE LEVEL WE NEED THEM TO INVEST. THERE WAS A GOOD EXAMPLE WHEN THEY HAD TO DEVELOP UV, THIS WAS TOO MUCH TOO QUICKLY, THEREFORE WE BROUGHT THEM IN. WE HAVE ANOTHER FEW EXAMPLES
BUT THAT IS THE EXCEPTION. WE TRY TO KEEP THE SUPPLY CHAIN SEPARATED BECAUSE THIS ALLOWS US TO BE MORE AGILE WITH OUR CUSTOMERS. THE MODEL IS VERY POWERFUL, WE BELIEVE. >> THANKS FOR BEING WITH US TODAY. PLEASE JOIN ME IN THANKING ASML CEO CHRISTOPHE FOUQUET.
[APPLAUSE] TOM: THE CEO OF ASML SPEAKING TO BLOOMBERG'S SENIOR EXECUTIVE EDITOR FOR GLOBAL TECHNOLOGY AT THE "BLOOMBERG TECHNOLOGY" SUMMIT IN CENTRAL LONDON. REITERATING HIS VIEWS ON THE HUGE OPPORTUNITY HE DESCRIBES AROUND ARTIFICIAL INTELLIGENCE, BUT INTERESTING ON CHINA AND EXPECTATIONS THAT WHOEVER IS IN THE WHITE HOUSE COME JANUARY OF 25, THE PRESSURE FOR ADDITIONAL RESTRICTIONS ON CHINA IS LIKELY TO INCREASE. THE CEO OF ASML ALSO TALKING ABOUT MEETING THAT BACKLOG FOR ORDERS FROM 2022 FROM CHINA AND HOW THAT PUSHED UP THE REVENUE STREAM INTO 2023.
THAT IS STARTING TO SLOW NOW AND AGAIN POINTING TO THE SOFTNESS IN THE DEMAND FOR CUSTOMERS THAT PRODUCE CHIPS FOR THE AUTO SECTOR, PC'S AND INDUSTRIALS. AN UPBEAT MARKET OUTLOOK FROM J.P. MORGAN ASSET MANAGEMENT. THE HEAD OF GLOBAL ASSET STRATEGY JOINS GUY JOHNSON TO DISCUSS WHY THEY ARE SO BULLISH ABOUT 2025. THIS IS BLOOMBERG. ♪ GUY: YOU ARE WATCHING "THE PULSE ," BEFORE THE BREAK TOM MACKENZIE WAS TALKING ABOUT THE AI TRADE. WE WILL BE BACK THERE IN JUST A MOMENT LET ME ASSURE YOU OF THAT. LET'S TALK ABOUT HOW THAT AI STORY FOLDS INTO THE WIDER NARRATIVE. J.P.
MORGAN ASSET MANAGEMENT PUBLISHED AN OPTIMISTIC OUTLOOK FOR HIS LONG-TERM CAPITAL MARKETS PREDICTIONS. IT DOES THIS EVERY YEAR, THIS IS THE 29TH REPORT OUT OF J.P. MORGAN ON THE SUBJECT, THIS IS THE REPORT FOR 2025. IT TALKS ABOUT A STRONG AND BUOYANT GLOBAL ECONOMY THAT WILL EMERGE AS INVESTMENT LEVELS PICKUP AND RATES NORMALIZE. J.P. MORGAN ASSET MANAGEMENT'S HEAD
OF GLOBAL MULTI-ASSET STRATEGY IS SITTING AROUND THE TABLE WITH ME THIS MORNING. I TALKED TO YOU THIS TIME LAST YEAR ABOUT THIS, THE 20 81, LET'S TALK ABOUT THE 29TH VERSION. JOHN: IF WE TOOK THE WRONG MOVES IN MARKETS, OVER 20% RALLY IN THE S&P, -- THAT IS SCOTTISH FOR BAD, THE POINT BEING, IF WE LOOK TODAY, WE SEE AN OPTIMISTIC OUTLOOK BECAUSE WE HAVE GONE THROUGH WITH A FINE TOOTH. WE LOOK AT SPENDING PATTERNS,
WE LOOK AT AI AND TECHNOLOGY WHICH IS BEGINNING TO EMBED IN THE SUPPLY SIDE OF THE ECONOMY. THAT PUSHES UP THE EARNINGS AND GROWTH BASED TO A LEVEL THAT FOR THE G7 IS THE HIGHEST LEVEL IN NOMINAL GROWTH TERMS WE HAVE FORECASTED SINCE 2020. FIFTH ANNUAL UPGRADE RUNNING TO OUR GROSS -- GROWTH EXPECTATIONS AND SEEING THE WAY GROWTH'S GETTING DELIVERED AROUND THE GLOBE, THAT GIVES US CONFIDENCE THERE IS STILL GROWTH INTO THESE VALUATIONS. GUY: LAST YEAR, THE NOISE HAS BEEN EPIC, THE SWINGS HAVE BEEN ABSOLUTELY GARGANTUAN. HOW CAN YOU SEE THE SIGNAL IN THAT NOISE? JOHN: THIS IS THE VERY POINT. WE HAVE A MARKET WHICH IS TRYING TO CALIBRATE TO A NEW ECONOMIC ERA. WE HAVE GONE PAST THAT NEW
NORMAL PHASE, ULTRALOW INTEREST RATE PHASE, WHERE CENTRAL BANK ACTIVITY USED UP ASSET MARKETS TO WHERE WE SEE INVESTMENT IN FUTURE PRODUCTIVITY BOTH IN SPENDING FROM GOVERNMENTS, EVEN ACROSS THE EUROZONE WITH THE NEXGEN FUND, WE SEE NORMAL INTEREST RATES, REAL INTEREST RATES THAT WE EXPECT TO BE POSITIVE AND THAT IS BEGINNING TO BUILD TO GROWTH RATHER THAN SIMPLY INFLATING ASSET PRICES. HAVING A FOCUS ON THAT AS THE MARKET TRIES TO CALIBRATE THAT SHIFT FROM THE OLD TO THIS NEW WORLD WE THINK IS IMPORTANT TO DO. GUY: IN TERMS OF WHAT THAT WILL MEAN, IS IT HIGHER INTEREST RATES? THERE IS ANOTHER WAY OF LOOKING AT INVESTMENT WHICH IS DEFICITS. BIGGER DEFICITS, THE BOND MARKET IS UNLIKE BIGGER DEFICITS, IT PRICES HIGHER YIELDS AT THE LONGER END DOWN THE CURVE. IS THAT THE SCENARIO WE ARE LOOKING AT, YES WE ARE INVESTING, BUT THE COST OF THAT WILL BE HIGHER COST OF MONEY? JOHN: YOU CAN COME TO THE DEBT TO GDP EQUATION IN ONE OF TWO WAYS, YOU CAN SHRINK THE NUMERATOR OR GROW THE DENOMINATOR. WE SPENT A DECADE TRYING TO SHRINK THE NUMERATOR AND IT DIDN'T END WELL, REAL INTEREST RATES AND IN THE U.S. AT -1.5% THROUGHOUT THE PERIOD
FROM THE FINANCIAL CRISIS TO THE PANDEMIC. WE ARE PROJECTING A POSITIVE RIGHT AROUND 70 TO 80 BASIS POINTS GOING FORWARD IN REAL FED FUNDS AND THAT IS MORE THAN NORMALIZATION. WE EXPECT THAT IS JUSTIFIED BECAUSE THE ECONOMY IS STRONGER AS WE SEE MORE FISCAL INVOLVEMENT, WE SEE LESS NEED FOR CENTRAL BANKS TO DO HEAVY LIFTING AND THAT IS A HEALTHIER OUTLOOK. TYPICALLY, HEALTHY ECONOMY SHOULD HAVE NEUTRAL OR POSITIVE INTEREST RATES NOT DEEPLY NEGATIVE ONES. GUY:
WHAT AM I GOING TO GET OUT OF MY 60-40 AND IS IT MORE THAN I GET OUT OF MY MONEY MARKET ACCOUNT? JOHN: MAKE NO MISTAKE ABOUT THAT, WE ARE EXPECTING OUT OF CASH U.S. DOLLAR TERMS 3.1% ON AVERAGE THE NEXT DECADE. SOUNDS GOOD BUT IT IS A LONG WAY DOWN FROM 5% TODAY. 60-40 WE THINK WE GET ABOUT 6.4% WITH THE SHARPE RATIO OF
3.31, SO FOR INVESTING, ALTHOUGH IT HAS COME DOWN FROM WHERE IT WAS A COUPLE OF YEARS AGO AFTER THE SELLOFF IN 2010 TO, LOOKING AT SOMETHING WHICH IS SMACK BANG IN LINE WITH THE LAST 25 YEARS AVERAGE FROM A GLOBAL STOCK BOND 60 HAVE A 40 IN DOLLAR TERMS. GUY: IF I WANT TO CHOOSE THAT, HOW DO I DO IT? JOHN: ALTERNATIVES MARKET RATE TWO YEARS AGO WE SAW THAT RESET IN BOND MARKETS AND STOCK MARKETS. WE HAVE SEEN REAL ASSETS MARKED IN PRIVATE ASSETS IS CETERA IF YOU ADD IN EXPOSURE TO PRIVATE EQUITY INFRASTRUCTURE, REAL ESTATE AND TRANSPORTATION, YOU TAKE ABOUT 30% OF YOUR 60-40 AND ALLOCATED ACROSS, YOU CAN PUSH UP THAT SHARPE RATIO BY A THIRD AND YOU CAN BOOST YOUR RETURNS BY ABOUT 80 BASIS POINTS. OUR NUMBERS ARE FOR THE MEDIAN MANAGER BEFORE YOU LAYER IN MANAGER SELECTION ALPHA. GUY:
AT GOLDMAN SACHS, THEY ARE CONVINCED THE S&P IS DOWN, YOU GET A BOOST MAYBE TO THE BACK END OF THIS YEAR BUT THE NEXT 10 YEARS, YOU WILL NOT GET MUCH OUT OF S&P, IT HAS PRICED IN ALL OF WHAT YOU TALKED ABOUT AND THE ASSET PRICE INFLATION IS IN THE MARKET EFFECTIVELY. YOU WANT TO TAKE THE OTHER SIDE OF THAT TRADE? JOHN: WE CERTAINLY DO, DAVID IS A GREAT GUY, WE LOVE THE WORK THEY DO, BUT WE SEE MORE POSITIVITY. THE EXPECTATION THAT THE U.S. ECONOMY WILL NOT DOMINATE THE ECONOMY, THAT WE WILL NOT SEE THE S&P 500 WHICH HAS HUGE INNOVATION, VERY STRONG REVENUE CAPTURE, AND A VERY DYNAMIC CAPITAL MARKET BEHIND IT, AND IS DESIGNED FOR A DIGITAL ECONOMY WHICH IS EMERGING TODAY. HOW THAT DOESN'T CAPTURE THE LION'S SHARE OF RETURNS WE STRUGGLE TO SEE. YOU DON'T HAVE THE VALUATION SUPPORT THAT MARKETS LIKE EUROPE, U.K.
AND JAPAN HAVE TODAY BUT YOU CERTAINLY HAVE HUGE REINVESTMENT AND HUGE UPSIDE IN TERMS OF RETURNS. WE SEE 6.7% EXPECTED RETURN FROM S&P 500 OVER THE NEXT DECADE, AND WHEN WE LOOK AT VOLATILITY ADJUSTED TERMS, IT IS THE CORE OF THE PORTFOLIO. GUY: I N TWO WEEKS THE ELECTION IN THE UNITED STATES, IT WILL IMPACT YOUR FORECASTING WINDOW THE NEXT FOUR YEARS, HOW BIG IMPACT THAT THIS ELECTION HAVE ON WHAT YOU SEE ON WHAT THE OUTCOME WILL LOOK HALFWAY THROUGH THE 10-YEAR WINDOW? JOHN: WHEN I THINK ABOUT IT OVER THE LONG-TERM, WE HAVE GOT THREE ELECTIONS THAT WILL BE SIGNIFICANT OVER OUR FORECAST HORIZON WHICH IS 10 TO 15 YEARS. THIS ONE WILL BE IMPORTANT AS THEY ALWAYS ARE.
I WOULD ALSO NOTE IF I LOOK AT CASH RETURNS VERSUS A 60-40 FOLLOWING ANY GEOPOLITICAL SHOCK THE LAST 35 YEARS, OVER ONE-YEAR HORIZON, 60-40 BEATS CASH BY AVERAGE OF 8% THREE QUARTERS OF THE TIME, OVER THREE YEARS, IT BEATS IT BY AN AVERAGE OF 19% 100% OF THE TIME. WE HAVE SEEN THIS MOVIE BEFORE. GEOPOLITICS IS A FACT OF LIFE AND WE HAVE TO WORK THROUGH IT BUT ULTIMATELY WE ARE LOOKING AT A STRONG ECONOMY IN THE U.S., A CATCH-UP LIGHT TAKING PLACE IN GOVERNMENT SPENDING, STRONG PRIVATE SECTOR SPENDING AND A MUCH IMPROVED SUPPLY-SIDE TO THE GLOBAL ECONOMY OVER THE DECADE AHEAD. GUY:
THANK YOU FOR BRINGING IT TO US. JOHN BILTON, J.P. MORGAN ASSET MANAGEMENT'S HEAD OF MULTI-ASSET STRATEGY. MARK PRESSURE ON THE EUROPEAN AUTO SECTOR CAR SALES FALLING IN SEPTEMBER, THEIR FIRST CONSECUTIVE MONTHLY DECLINE IN MORE THAN TWO YEARS. THE DETAILS ARE SET TO FOLLOW. THIS IS BLOOMBERG.
TOM: WELCOME BACK, I'M TOM MACKENZIE AT THE BLOOMBERG TECHNOLOGY SUMMIT IN CENTRAL LONDON. NEW CAR REGISTRATIONS IN EUROPE FELL MORE THAN 4% IN SEPTEMBER. COMPARED TO A YEAR AGO. STELLANTIS THE OWNER OF BRANDS INCLUDING FIAT AND PEUGEOT.
CRAIG, WERE YOU SURPRISED BY? THIS DROP IN SALES? ? >> NOT NECESSARILY, WE HAVE SEEN THE LAST COUPLE OF MONTHS SOME SOFTNESS FOR THE EUROPEAN MARKET. IF THERE WAS A SURPRISE HERE, IT IS MAYBE THAT WE HAVE SEEN THE BATTERY ELECTRIC VEHICLE SALES TRAINING IN THE WRONG DIRECTION, AND THAT BEING A BIG SOURCE OF CONCERN. WHAT WE SAW THIS PAST MONTH WAS SOME FIRMNESS ON THAT SIDE OF THE MARKET.
SALES WERE UP 14% WHICH IS A POSITIVE DEVELOPMENT FOR CARMAKERS MAKING THIS TRANSITION. BUT IT WAS THE WEAKNESS ON OTHER SIDES OF THE LEDGER THAT LED TO THIS FIRST BACK-TO-BACK DECLINE IN MONTHLY SALES SINCE MID-2022. TOM: PARTICULARLY THE NUMBERS FOR STELLANTIS WERE UGLY INDEED BUT SILVER LINING WHEN IT COMES TO ELECTRIC VEHICLE SALES.
THIS ITEM THE RUN-UP TO A BIG EARNINGS WEEK IN THE AUTO SECTOR, WHAT ARE YOU AND THE TEAM LOOKING FOR? >> TODAY AT WILL KICK THINGS OFF. -- GENERAL MOTORS WILL KICK THINGS OFF. THERE IS UNLIKELY TO BE SURPRISED AT OF GM IN THAT THEY JUST HAD AN INVESTOR DAY. THIS IS LARGELY A U.S.-DRIVEN STORY AND THEIR PRICING HAS BEEN EXTREMELY STRONG AND THAT WILL BE A MAJOR POINT OF EMPHASIS. YOU MENTIONED STELLANTIS,
CONCERN ABOUT WHETHER THE FACT THAT THAT COMPANY WILL HAVE TO BEND ON PRICING, AND DISCOUNT TO CLEAR INVENTORY HOW DISRUPTIVE THAT IS FOR OTHER AUTOMAKERS THAT REPORT THIS WEEK. TESLA TOMORROW WILL BE INTERESTING JUST IN THAT WE HAVE SEEN SOME SOFTNESS FOR THEIR SALES. THERE HAD BEEN IMPROVEMENT IN THE LATEST QUARTER. ONE THING I WILL BE LOOKING OUT MOST FOR FROM THEM IS REGULATORY CREDITS. THEY SELL CREDITS TO OTHER AUTOMAKERS TO HELP THEM COMPLY WITH CO2 STANDARDS. THAT BUSINESS IS PROVING TO
HAVE SOME REAL STAYING POWER AS OTHER AUTOMAKERS STRUGGLE WITH SELLING MORE EV'S. TOM: THAT IS REALLY INTERESTING ON THE REGULATORY CREDITS FOR TESLA. OUR GLOBAL AUTOS EDITOR CRAIG TRUDELL. WE WILL HAVE A CONVERSATION WITH THE DIRECTOR OF DEEPMIND JOHN JUMPER AND THE CEO OF ARM AS PART OF THE BLOOMBERG TECH CONFERENCE THAT CONTINUES HERE IN CENTRAL LONDON. STAY WITH US.
THIS IS BLOOMBERG.
2024-10-25 00:25