Bloomberg Markets Today 04/15/2024

Bloomberg Markets Today 04/15/2024

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The dominating Friday session aluminium, nickel jump as fresh US and UK sanctions come into force that will ban new Russian metal from global markets. That's now being priced in. But there's a little flexibility around this story. We'll talk about that in a moment. And the German chancellor arrives in China hoping to avoid a trade war. He's expected to hold a press conference in the next couple of hours.

We'll bring you those comments. But in the meantime, a quick check on these markets. You're seeing green on the screen when it comes to the future session. Your stock futures higher by 4/10 of 1%. To me is the currency picture that matters here. Despite yields kind of going a little bit higher, you're seeing stronger European currencies. Your dollar at a one of six handle cable

now at 124. And of course, we're continuing to monitor the metals aluminum higher by 5.3% this morning. Marcus today starts right now. But you that the state of Israel is strong, the IDF is strong, the public is strong. We appreciate the U.S. standing by Israel's side, as well as the support of Great Britain, France and many other countries. I have set a clear principle.

Whoever strikes us, we will strike him. We will defend ourselves against every threat. And we will do this calmly and with determination. I'm only as good as that in my heart

that may affect us from our point of view. This operation is over and there's no intention to continue the operation. But if the Zionist regime takes any action against the Islamic Republic, whether on our soil or in places belonging to us in Syria or elsewhere. Our next operation will be much larger. The Iranian chief of staff, the Israeli prime minister, speaking after this weekend's attacks launched from Iranian soil to Israel. It's a weekend that we think is going to potentially lead to further escalation. The problem markets have this morning,

Kitty, is we just don't know. We have no idea. We also are hearing conflicting stories about what this means from a geopolitical stance as well. But are markets complacent? Have they been complacent this entire time? We have the likes of Terry Havens, for example, over Pangea's policy making that exact argument, foreign policy not being accounted for. Let's get a take on what is happening here in terms of the details that we're looking for. Let's get an update from Paul Wallace. He led a he leads Middle East government and economy coverage from Dubai.

Paul, good morning. Markets seem to be taking a more sanguine view this Monday morning. They're looking at this weekend's events. They're looking at the price action from

Friday and thinking it could have been worse. Is that the correct assessment? Hi, guy. That certainly seems to be the view of the markets. Oil is down a bit. The Israeli shekel has strengthened a

bit today, so it seems as if there's no more geopolitical risk being priced into and some of the assets that are likely to move the most on any escalation in the Middle East conflict. As Christie says, we just don't know what Israel is going to do. We heard from Prime Minister Benjamin Netanyahu there and he implied Israel will do something. And when it had such a major attack, it

may have caused limited damage and no fatalities. So follow that ten year old girl that was injured is pretty badly injured. But it was either way, it was a massive attack with more than 300 missiles and drones fired at the state of Israel. So I think the public will want the government to do something.

That doesn't necessarily mean there's a clamoring among the Israeli public for a direct strike on Israel, on Iranian soil, which I think would be the most escalatory move that Israel could do and would would probably be bearish for four four markets and send oil prices higher. However, there are other things Israel could do. It could hit Iran's proxies such as Hezbollah and those in Syria harder. It could target Iran linked assets in

the Middle East, hotter than it's been doing in the last few months. So there's a lot to wait on. I don't think Israel will sit back and do nothing. But I think it could take heed from what President Biden of the US and European allies and Arab allies of Israel urging, and that's don't escalate things from here. Well, Paul, what does the timeline then look like? If we're waiting for that response, we don't know what it looks like. There's that uncertainty that you laid out.

What are the next 24, 48 hours look like? Not just in Israel, not just in Iran, but in the region. I think so far the Israeli ministers that have spoken, apart from some of the far rightists in government, most of them have been quite measured. They have implied that Israel will do something, but they've said that it will bide its time and that it won't. It's not in a rush to hit back at Iran

immediately or aggressively. So there's no inevitability about something happening in the next 24 hours or even the next three days. But we certainly will have to watch comments from the Israeli government this this week very, very closely. Prime Minister Netanyahu was at one stage going to do a press conference last night from Israel. He didn't do that. It was it was canceled.

Read into that what you will. He hasn't scheduled as of yet to make public comments today, but he's almost is almost bound to some time in the next day or two. And we'll have to watch those very closely because that will probably be the clearest. That will probably give markets the clearest indication as to what Israel intends to do, whether it intends to hit back hard or in in a softer way.

And that's probably more to the liking of global markets. Glen Ross. Paul Walser, who leads our Middle East government and economy, covers walking us through the developments of the last 2448 hours and what we can expect in the next or near future.

We thank you so much for bringing that crucial context. In the meantime, the United States and its are and its allies are hoping to avoid further escalation in the Middle East following the Iranian attack on Israel on Saturday. Global leaders will meet today to discuss the situation. The president's been very clear. We don't seek a war with Iran. We're not looking for escalation here. We will continue to help Israel defend itself. Joining us now, Bloomberg's Vonnie Quinn.

Based off Dubai at the moment. Barney, what have been we've been hearing from the international community. Widespread urging of restraint and also condemnation of the actual attack itself. I think really the attack had been

telegraphed for so long by Iran that this is one of the reasons why we're seeing a little bit of relief in the markets. Right, Because it's finally done. Now, that doesn't mean the geopolitical risk can't get priced back in real quick if something else happens and you heard from Paul earlier that Israel has yet to respond and we'll have to see what that will be. But in terms of the international

community, almost everybody I don't to say everybody, but almost everybody really condemning this attack and urging restraint. And don't forget, this is a warm embrace of Israel. And Israel won't have felt this kind of warm embrace for quite some time. So it should be enjoying this moment. You heard, obviously, the U.K. prime minister out the gate very early, saying that it was a terrible thing that had happened and wanting to be the first to respond. We also obviously had France and the German chancellor.

It overshadowed his first few hours in China when he had to respond and condemn this attack. Also, the supranational groups, the multinational groups, they have mostly all come out and condemned this. NATO's condemned to the G7, convened by Joe Biden on Sunday night, issued a statement of condemnation and said they were going to look at more sanctions.

The U.N., it's a little bit more nuanced. The secretary general, Antonio Guterres, called for an immediate halt the hostilities. He cited the risk of a devastating region wide escalation. But, of course, as we know, the UN

Security Council also includes Russia and China, which are allies or very close allies to Tehran. Vonnie, good morning. What have regional leaders been saying and also how does this interact with their view on what is happening with gaza as well? How are these two issues now being affected by each other? It's really fascinating to watch, Guy, because we are seeing condemnation in this area as well in most Middle East countries, obviously not the likes of Yemen, for example, which was involved, frankly, in the early hours of Sunday morning and these attacks by the likes of Saudi Arabia. And I will quote this. Saudi Arabia had, quote, deep concern

over the military escalation developments in the region. We also know, for example, that Jordan took part in the operations that took down some of those unmanned vehicles or drones, missiles and so on that were headed towards Israel from Iranian soil. So there is deep concern that this might escalate. And there are phone calls back and forth between some of the leaders, including just this morning, Saudi Arabia's foreign minister and Iran's foreign minister. Now, apparently these two have been keeping in touch since October 7th, not the warmest of relations between the two.

And it was a terrorist call, according to a person familiar with the matter. But there is a sense at least, that there is pressure on Iran from within the region as well, to perhaps, you know, allow for some restraint here and not escalate. And we did hear Iran say this was a one and done. And we did hear the United States saying that they were not going to retaliate against Iran on behalf of Israel or anybody else. So I think there is a lot of hope out there that perhaps markets can breathe a sigh of relief, as can individuals across the region. Vonnie, thank you very much indeed for

joining us out of Dubai. Let's talk about the the market response to all of this and also some of the coverage that we're going to be bringing you later. John Kirby, communications adviser to the White House National Security Council, will be joining the surveillance team to discuss the latest from the Middle East. That will be certainly an interview. But I suspect the oil market will be paying attention to thus far Monday. Now, Friday is a different story, but thus far, the oil market has largely shrugged off Iran's attack on Israel.

Prices basically ease, and we're kind of back to where we started Friday morning. Let's get a sense of what is happening here. We also need to talk about what's happening in the metals market. A little bit more detail. Joining us now, senior executive editor for energy and Commodities, Will Kennedy. Good morning. Why the cautious response this morning?

We saw a spike Friday. We faded that move this morning. I think it's a question of you always buy into these things and, you know, you always position yourself for them to be worse than you expect. But it was clearly flagged. People knew that it was coming.

And I think for all the reasons that Vonnie just outlined, the Iranian statement, that they see this as the end of the matter, the the attempts diplomatically to calm things in the region. The market is taking a fairly sanguine view of this. We should always remember that all this turmoil in the Middle East has yet to impact any oil production. Yes, it's impacted the shipping of oil in the Red Sea, and I think shipping remains a concern for the market. But as of today, oil is getting pumped in the same amount and it's being shipped from the Persian Gulf. So and of course, supply not affected,

whereas elsewhere, the commodity market, we are very much seeing supply affected. Of course, I'm talking about the metal story that we were seeing. Explain to us and I were talking about this before the show, that the expectation now that these kind of sanctions have been in place is that excess supply from the metals market, aluminum, nickel, etc., are going to hit the market. So why are prices rising in the face of that? They are rising on the LME.

So I think what you're going to get is a bifurcated market. So new Russian mined metal will not be able to come on to the LME market, the market where benchmark prices are set. And that's probably why you're seeing prices rise today because they realize that is going to be less metal available to them. Now that market, that metal will

increasingly flow as it has been to China, which is likely to get that metal at a discount. So I think what you're going to see is a bifurcated metals market globally where metal on the LME, it's more expensive a metal that Russia is selling to China and that's what markets are working out. But I would stress there's a lot of law here, there's a lot of people stuff for people to read, think about, ask questions, consult their lawyers as at exactly what metal they can trade, trade and what they can't. Because Russian metal mined before April the 13th can still be traded on the LME.

So it's a fluid situation. But I think what you're going to get to is a two tier metal market. So just to reiterate, this is a this was a story out Friday. This was new sanctions that have come

into force that will restrict the exports of Russian metals, nickel, aluminium and those metals will no longer as of Friday, the new metal will no longer be able to arrive on the market. Yeah, we'll be with the exact details. And I hear you're saying about lawyers are important, but this is something that I would have thought that the metals market would have been preparing for for quite some time. Does that mean we get a more balanced approach to pricing as a result because of that preparation? I think people have been expecting this for some time, but in some metals market and in some metals markets, you've clearly seen a lot of Russian metal already being diverted to China, which is of course the biggest consumer of many industrial metals. So the market has been evolving in this way since it's there's a parallel to be drawn with the oil market when the price cap and European sanctions were imposed on Russian oil exports, you saw this big reordering that the movement of oil that had been coming to Europe, to Asian customers in India and Russia. And while the parallels are not exact by any means, it's a similar sort of story, something we would be watching very, very closely in terms of how this all shakes out. Bloomberg Senior executive editor for

Energy and Commodities Bill Kennedy. They're breaking it all down for us. From oil to, of course, the metals story. Coming up on the program, we're going to get more on the Middle East and the global response. Julie Norman from Russi joins us this morning. Do not want to miss that interview at 7:30 a.m. UK time.

Plus back to the stock market. First quarter earnings pivotal for the European story after the region's company suffered two quarters of misses. We look ahead at some of the big names to watch out for. And of course, as always, if you have any questions of your own for our guests, please send them to us on eBay. Plus TVE. Go more ahead. Stick with us.

This is Bloomberg. On the 15th Monday morning. Lots of talk about obviously, a busy weekend. We're trying to figure out exactly what it's all going to mean. Indications are at the moment we're going to see a reversal of the risk off trade, basically.

So on Friday. Now you need to think about the Friday session, also fall. Then what happened with the big banks, Jp morgan in particular. So Friday, that was definitely part of the risk off trade. But this morning it looks like ex markets at least are going to trade sideways the marginally positive. We may get a half a percent move to the upside bonds, some of the bit that we saw back out of Friday, kind of just beginning to fade as well.

Joining us now to discuss all of this, Jeremy Devon, senior fixed income fund manager at Cartier. Kadri, am I saying that correctly? Andrew D'Andrea good effort. I tried. I gave it to you guys, but then we got it wrong. Okay, Friday's session risk of markets looking at the weekend thinking we don't know what's going to happen Monday morning.

We know what's going to happen, what has happened. It doesn't look as bad as we thought it was going to be. But geopolitics seems now to be much higher on investors radar screens. How do I think about that one? I think when I come to my portfolio, look, I think the fears are always there beforehand. No one knows exactly what's going to happen in terms of the retaliation.

What we've seen so far has been a pretty muted response in terms of any retaliation from the Israelis. Obviously, the US noise out of Washington being that they're trying to calm down any tensions and prevent any escalation of those tensions. So I think that's where we're seeing some relief this morning in terms of geopolitics generally. Often they have an immediate effect and then two or three days later, the market doesn't see any impact. I guess the longer term impact is more through the inflation channel, What oil does, there's there's both sides there. Because we have higher oil prices, we could see higher headline inflation.

But on the flipside of that, the impact on the consumer in the US, you know, gas prices would impact demand and therefore we can see a lower growth rate. So I think geopolitics, it's in the mark is in the market now. It's in focus. But generally we'll still trade towards fundamentals and the impact there. Okay. The bank earnings story, I mentioned that just a moment ago, Jp morgan down by six and half percent Friday were coming into the US reporting season. I'm going to go into the European reporting season.

What does that reporting season need to deliver to keep the equity markets at least on track? I think, look, earnings are important, but also central bank policy is important. I think from a from the perspective of equity markets, our positioning is quite large now. I think we've seen a build up in positioning so far this long position, long positioning.

So any disappointment, as we saw on Friday from from Jp morgan, could see a bit of a sell off on equity markets because there is longer positioning there in terms of how it affects the market going forward. To be honest with you, I think it's more of an inflation story than a growth story. So earnings are obviously very important for feeding into growth and how that impacts fixed income markets. But inflation is is still front and center and it's the most important aspect for Fed policy, which is one of the main topics driving markets. You're talking a lot about positioning here.

When does the flight to safety kick in? Yeah, look. Well, when positioning is long, flight to safety is more extreme, right? Because people unwind their longs and we go back towards neutral flight to safety. If we're talking geopolitics, as I said, that's a short term impact. It doesn't generally last for that long. But flight to safety can be seen in many different ways for those equities, whether that's the dollar, whether that's through the bond market, as we saw on Friday. And people haven't really been thinking

about flight to safety in terms of bonds. They've been more focused on the inflation picture and how high will bond yields go this year, which is strange because just six months ago there was this kind of rhetoric that this was going to be the start of a big bond bull market, and it kind of went nowhere. Which brings the question is 5% yields on the horizon? Is that a realistic scenario? Look, there's a few different topics for bonds. There's growth, there's inflation, and what that means for Fed policy and not only impacts that will drive where yields go. In terms of the growth picture, for sure, the US market, the US economy has been much more robust than many expected.

However, I don't think it's the most important point for the Fed. I think that a lot of the growth that we've seen has been fiscal policy. It's also been because of migration. When migration drives growth, it means

that potential growth higher and it means that there's not that big positive output gap. I'm sorry, migration as like in the States. Yes, indeed, indeed. So with those new workers coming into the economy, potential growth rises and therefore that higher growth rate that we're seeing isn't necessarily as inflationary. So I think the growth aspect isn't too worrying for the Fed. They'd still be happy to cut rates with

growth where it is. I think inflation is much more important. And we saw last week with the CPI print, we've heard Powell talk about super core inflation. So that's core services, ex housing. And again, that surprises. The upside. We've seen the annual rate on super core

inflation move from something like 3.7 to near 4.8 over the last six months. So that's something that's very important and something that we're really looking at going forward. And then finally, what does that mean for Fed policy? And I think that print we saw last week probably means that June seems unlikely. Know the markets saying that to us. We need to see some inflation prints a bit lower to to see that cut. Let's assume that the Treasury do continue to track hard towards 5%. Can I live in a world can I can I see a world where European US yields go higher and European yields go lower because of central banks that are cutting over here? What's the what's the gravitational effect on treasuries into the European market? Even if central banks here are cutting, there's a very high correlation between global yields, right? So I think it's very unlikely that we see a large dislocation. I don't think we'll see yields going in

opposite directions, although we did last week. Right. So I think that the ECB, for example, as the ECB being the major central bank over here, will struggle to cut, say, four times this year if the Fed aren't cutting at least two. I think to be honest with you, the propensity for European growth to surprise to the upside is much larger than the US. Everyone expects US growth to be much stronger than Europe.

I'm not disputing that. But the propensity to surprise is more on the European side. I think so, yeah. I don't see a big dislocation between cutting cycles. I mean, there's going to be some differences for sure, but I don't think they're going to completely correlate.

Let's assume that the Fed goes once and the the ECB goes three times, which which seems plausible. And I'm wondering I'm still wondering where how you position in that. You talk about the fact that they probably won't be a significant dislocation. That's probably true. It tends. Is it true at the front end? Is it true kind of.

Where where could you get a reaction to that spreads? And is it something that you think. Sees money moving out of the States and into Europe. I just kind of want the flow story, it looks like as well. Yeah, in terms of in terms of the first part of that question, of course, if a front policy is easier, is easier, and in Europe then we could see it outperforms the front end. However, right now we're showing just over three cuts in Europe and maybe one and a half to two cuts in the U.S. So if there's that three versus one,

it's not that different to market pricing. In terms of that three versus one. I don't see it, to be honest, because I think if there's one Fed cut, it's either going to be July and then the market accelerates or the growth story accelerates and inflation doesn't come down, in which case I think the ECB will struggle to cut three times because through the exchange rate channel, we'll see euro dollar plummet, we'll see imports of inflation for Europe, and then the ECB will worry about inflation picking up in Europe. So I don't think if the Fed only cut once, ECB can really go three times and if the Fed hold off in July and that one cut is see December time. We must be competitive. We must be able to attract investment. We must convert the really good you know, we have a fintech staying here into the IPO market. So I think it's numerous things that the

business is looking for. But clarity of policy, policy, consistency of policy is going to be really important. Currently a policy consistency your policy might break. Joining us Friday talking about the fact that we need to keep in the UK some of the fintech startups. It's becoming scale up to becoming IPOs. How does that process work? Well, we're certainly going to have a stab at talking about that this week. It's a key question when it comes to UK

competitiveness, particularly in the financial services sector, and it's on the agenda at the Innovate Finance Global Summit 2024, which kicks off in the city of London today. Joining us now, Jenny Hertz, CEO of Innovate Finance, the industry body representing UK at fintech. Quite right. Kind of laying it out for us there.

How do we start up starts out scale up and then IPO. How do we make sure that that is happening in the finance sector at the moment, in the fintech sector right now? What is your perspective on answering that question? Yeah, I mean, first, I think it's really important to emphasize that we are in a great place for UK fintech. So in 2023, despite a pretty challenging economic year for all industries, we still saw more than 5.1 billion USD of investment coming in to UK fintech. That is second in the world only to the United States, and it's ahead of the next 28 European countries combined. So we are very much a global leader. But to my point, ensuring that we have that clarity of policy, that clarity of forward progress and regulation is absolutely critical to making sure that we maintain that lead or do we? So I think we are on a positive pathway forward. We know that 2024 we will are likely to have an election. It will be a different year.

When we're looking at politics, we've seen great engagement from both this government and both from the opposition and also real understanding of how critical fintech is not just for the sector but for consumers across the country. We know that 98% of UK fintechs are having a positive impact on the economy. More than a quarter are directly addressing inequality, and more than a third are supporting institutions that foster strength and social justice. So we know how critical it is that we continue to keep supporting, and that's going to take regulators, government and industry all working together. So what do you need? What do you need to double that figure of 5.1 billion?

So we know that in the UK we've been a global leader because historically we've had such a proactive regulator. And I would argue that one of the most important areas for us to continue moving forward and progressing on is making sure that we still have that proactivity when it comes to regulation and that clarity. So making sure that we've got a proactive approach on things like artificial intelligence, looking at crypto and open banking, putting in place a regulatory framework that both protects the consumer but also allows innovation to thrive because it is, at the end of the day, consumers that benefit from this new choice and from this innovation as well. So one of the criticisms of the regulatory environment, particularly in the UK, is that because it's so stringent, it actually stifles some of that innovation, especially when it comes to big tech companies from the states who are looking to invest and take stakes. What do you say to that?

Does it stifle innovation to some extent? So we need to make sure that we are working with the industry and allowing innovation to happen. I think on the big tech question, it's a really interesting question because when we think about, for example, fraud or authorised push payment fraud, we do know that around 70% of authorised push payment fraud is actually coming from the large online platforms, the big tech 60% coming from matter alone. So when we talk about protecting the consumer, we want to make sure that those platforms are held accountable at an early stage and not just the banks or the challenger banks.

How do we make sure that what we do here doesn't end up in America when it comes to the IPO story? Yeah, it's a great question. Well, I would argue and obviously it's our 10th annual edition of the Innovate Finance Level Summit. We've got the best industry for you. We've got the best industry for fintech here in the UK. We've got the best market for that technology, too, though I thought, well, I believe we are getting there and we are having a positive pathway forward. It's been a tough year for my peers around the world, so I would argue as well and I think we've seen some really positive changes coming over the past few months. The LSC is working towards that as well. And more and more we are seeing that appetite, but we have to take progress and we have to take some action to make sure we keep those fintechs.

We've just launched something called the Unicorn Council, which is bringing together the CEOs of the largest and the highest growth fintech firms in the UK. And we have specific policies around how to keep them here and have them list here too. But who are you appealing to? I mean, you're talking about this growth progress.

Who's buying into the UK right now? Well, per my earlier point, we have we are seeing more investment than pretty much anywhere else in the world other than the United States. We know that fintechs are still choosing to set up and to start here and to grow and to scale here. We have some of the most impactful fintechs around the world staying here in the UK. But to your point, we do need to continue to see that progress and that momentum going forward.

And there are changes that have to happen around all stages of growth. So looking at things like you guys as the guys looking at VAT, looking at stamp duty, looking at areas around the regulation are critical. Yeah, but you're also then not only competing with Silicon Valley and the Nike, you're competing with the East as well.

Mike Drake made the point that the Asia story is actually becoming a bigger threat than perhaps the New York story is. How do you compete with Asia right now? Absolutely. And I think to this point, it's really important that we see that collaboration between government and industry and regulators, because that was an area that we see in Asia, and it's critical that we develop that collaboration here, too. All right, Janine Hertz, CEO of Innovate Finance, we thank you so much, Bringing us a little bit more context of the other side of the equation. Some of the folks that are actually trying to get in and eventually IPO in the fintech sector.

So that is our corporate side of the story. Let's bring it back to the macroeconomics, the foreign policy, if we can. We are getting some breaking headlines from the leaders of the U.K., Germany and France as well, talking about the situation in Israel. The U.K.

is David Cameron is going to visit Israel in the wake of the Iran attack. That coming from a French broadcast network, it looks like as well, you have some kind of coming out of the U.K. about coordinated approach. I'm wondering whether or not this is a David Cameron Annalena Baerbock. We'll get the French, maybe others, Italians potentially joining in this as well. A concerted European push to make sure

that the situation doesn't escalate further. But it looks like a series of European foreign ministers will be will be traveling. The source seems to suggest that maybe they're all going to be traveling together or kind of jointly. One would argue maybe to try and prevent this situation escalating further.

So we're starting to get a look at how maybe the European response is going to come together. There's already been significant calls, obviously, for further escalation to be limited at this point in time. We should probably talk about what we going to be talking about, the stock story as well. Keep an eye on this market this morning after a big risk of Friday. Looks like we're going to see a much

more stable trade coming into Monday. Keep an eye on the metals story as well. We've been talking about this as well. We're having these restrictions being put in place. International sanctions coming in that's going to be affecting the LME. What's nickel this morning?

What's what's happening with aluminium? But the miners more broadly as well could be in focus. What's that trade to? That's next. This is Bloomberg. Welcome back to markets today. We're about 20 minutes away from the cash equities open in Europe. You're seeing a little bit of a mixed picture when you look at European equity.

Some outperformed the stoxx 50 futures. How much of that is, though, a story of the commodities rate that we're going to be watching that very closely to the open. But we should talk about our top story. Iran's weekend attack on Israel has sparked global diplomatic efforts to prevent a full blown regional war in the Middle East. I want to go a little bit more analysis now. Julie Norman, senior fellow on the Middle East at RUSI, joins us this morning. Julie, let's start with the European response here. Before we get to the nitty gritty of

what's happening in the Middle East, we're getting headlines that the UK, Germany and even France are perhaps sending leaders to Israel and having conversations with Benjamin Netanyahu. Walk us through your initial interpretation of where Europe stands in relation to what's going on. Sure. Well, obviously, the G7 met yesterday. We've seen a lot of calls, discussion between allies of Israel, between the United States and European leaders on really how to play this moment. It's a very decisive moment for Israel and for the Middle East with what Israel decides in these next few days. The timing of any potential response,

the scale of any potential response. And all of this has repercussions not only for Israel, but for the region and for for European states and really for the world who have an interest in the region. So right now, we see diplomacy on full force, not only from the United States, but really, as you said, from European leaders to doing everything they can to try and have an impact on Israel's decision making at this very pivotal moment. Julia, let's talk about what this kind of the crux of what this attack actually signified.

There have been two sides of the equation by geopolitical strategists over the weekend, on the one hand arguing that perhaps this is a more symbolic story. It was there were warnings that were issued. Israel and its allies knew that this was coming. And on the other hand, that perhaps this was actually meant to be a bigger attack that didn't actually succeed. Julie, from your perspective, what was the intention here? Sure. I would say it was calibrated.

I was at the higher end of what I think many expected over 300 drones and missiles in your shot at Israel. But with that said, most were targeted at military facilities and bases. It was telegraphed, so to speak, several days in advance, and most of the weapons that were used were very slow moving ones that could be tracked on their advance. So I do think there was an intention to keep casualties low, probably to measure any kind of retaliation from Israel. And with that said, you know, Israel's defense system and in coordination with the US and and France and regional allies in the UK was extremely successful in blocking over 99% of those. And I would say that I'm sure Iran

probably thought they could get through that a little bit more than they did, even though those defense capabilities were somewhat known. It does put those defense capabilities out in the open, too, and I imagine will will play into Iran's strategic thinking in the future as well. But but a calibrated move to some degree, though, again, a very much a public display for Iran's domestic audience at the same time. Julie, good morning. Financial markets breathing a sigh of relief in some ways, given what you just said. How far away are, though, from escalation to full blown conflict between these two nations, which would have much more significant implications for the global economy? Yeah.

I mean, this moment is probably the most tense and I would say the closest we've gotten to that since those immediate days right after October 7th. And that's one reason why we do see pretty much every diplomatic body, the UN, the G7, in full force over the weekend. That's why we see European leaders going to Israel right now to really try and prevent that kind of an extreme escalation from happening. I do think Israel is aware of that in contrast to the Gaza war. Whatever Israel does regionally will by nature draw in other countries, including the US, and they're aware of that.

How does this. How did this weekend change the conflict in Gaza? Well, it certainly has moved attention away from Gaza there. I do think that will return simply because the situation in Gaza has has not changed even as events are unfolding elsewhere in the region. I think for Israel, this is what happened over the weekend, does reaffirm to many of their allies the need for continued military supports. It kind of frames their their position in the region as as one of a security issue that that Netanyahu that Netanyahu has always sort of emphasized. But at the same time, the devastation in Gaza has not gone away. The potential incursion into Rafah is

still very much on the table and we still see over 100 hostages who are being held and no ceasefire in sight. So everything that was happening in Gaza last week is still happening now. And there's going to need to be a return to that internally as well as from an international perspective. Julie, this conflict has been on multiple fronts with Israel and and Israel and Lebanon. Israel and Syria.

Iran and Israel, of course. Where is the next flashpoint to watch as we're awaiting both the Israeli response to Iran and any further actions from Iran? What's the next flashpoint? There are unfortunately many in the region right now. And again, many of Iran's affiliate groups that have already been so active throughout this conflict. But I'd say one that we have been watching over these past six months has, of course, been Hezbollah in southern Lebanon and on that northern border of Israel. That border has been very tense. It itself has been escalating in a bit more of a slow burn kind of way. But I think if Iran's really looking to

cause real damage to Israel, they would activate Hezbollah in a much stronger way in Israel, too. If they were really looking to escalate, they could could really stoke the tensions there in a much more direct way than they have already. So that's one area where diplomacy and military deterrence has been in full force.

And we'll continue to watch closely. Julie. Ed defense works this weekend. The Israeli system, the U.S. system, the regional system works. To what extent does that change the nature of how a conflict could evolve from here? It looks very effective. The Israeli system over the weekend.

How does that change Iranian thinking, do you think? Yeah. So on the one hand, it was a extreme success, as the US has very clearly said, that the various types of missile defense all worked extremely well in this attack. At the same time, it does put all those defenses somewhat out in the open. Iran is now sort of aware of the reach and the capabilities of Israel systems, and that is something that will probably buy into their longer term strategic thinking as well. Just as we saw that internally with UN with Iron Dome and how Hamas and other actors were able to try and and get around that over time. But in this immediate moment, it was a success. It did what it was supposed to do.

Mean, I think we also saw the success of a very diverse coalition working together to enable that to happen over the weekend. Julie, thank you for updating us and giving us some analysis and contacts. Judy Norman, Senior fellow on the Middle East at RUSI. Thank you very much indeed. Let's talk about the market response. Paul Thompson, our executive editor for Asian Markets, joining us now.

A couple of minutes on what's happening in these markets. Paul, in some ways it looks like a sigh of relief. Yeah, I think that that's a pretty much captured guy. You know, we were just hearing from Gary Numan there, talking about how it was a calibrated response from Iran designed to, you know, put on a good show. But at the same time, not cause too much disruption or escalation. And that seems to be comforting the markets some more.

We've got, you know, crude oil, little change having gone on a bit of a roller coaster at the end of last week, a little bit of relief being seen in Fox and bond markets, too, with with the proviso that there's still, you know, plenty of nerves out there as well and a little bit more of a risk premium kind of being factored into things just in case there's more retaliation because we're not completely convinced that that's the end of the story at this point. But yeah, I think I would agree with you some some relief there at least. Paul. In some ways, the risk of session Friday, particularly the United States, was driven by the start of the reporting season. J.P. Morgan in particular, was under significant pressure. To what extent has that changed the tone going into the wider reporting season, do you think? Yeah, I think that that was important as well.

You're right. I know they were. The risk off was the primary driver that we saw for that one and a half percent decline in the S&P, the biggest drop in a few months. Definitely the bank earnings mattered to and that's had it some feed for you and to Asian markets as well. With the banks under pressure as well, it's taken some of the shine and the optimism out of that earnings look, because everybody was so confident that we were going to see the economy driving forwards, the the the the earning power of corporate America, the did that any jolts in that confidence, you know, is something that can cause a little bit of a setback. So as we get more of the reporting season from that, we will see whether it's going to be possible to to meet those very elevated expectations or whether we start to see a little bit of softness coming through into the equities picture, regardless of what we see going on in terms of the situation in the Middle East. Paul, great stuff. Thank you very much indeed.

Paul Thompson, our executive editor for Asian markets, talking there about the start of reporting the reporting season. Let's turn to more detail, more detail as to what is happening with European stocks this morning. Zoe, students got all the details. Morning, guys. We're keeping an eye on the mining stocks today as aluminium surged by an intraday record on the London Metal Exchange this morning, gaining by as much as 9% and nickel also jumping as well. Now, this is in response to the UK and the US imposing new sanctions on Russian production in an attempt to prevent further funding of the Ukraine war.

Now Russia accounts for around 5% of the supply of those metals. So it is a big supplier and these are some of the miners we're going to be watching today. The London ones, Rio, Glencore, Anglo, also Norsk Hydro over in Oslo. That is a big maker of aluminium in

particular, pretty mixed in terms of year to date performance given their different exposures to the market. But mine is definitely in focus this morning. Then we're also looking at Adidas double upgraded at Morgan Stanley today. They go underweight to overweight.

The analysts over there are pointing to success in the terrorist brand. So this is the sambas that are very popular. We all know very well. Also, they say that Adidas is doing well in basketball and football, particularly ahead of the euros, which is just around six weeks away. And they say that a lull in Nike's

innovation is going to benefit Adidas. We can see that stock has had a decent run on the one year up around 20% here, but longer term has been an underperformer, as this chart shows. This due to the ending of their relationship with Kanye West, which was a big money earner for them. So that stock seeing some value, according to EMS, down 40% over the three year period on that stock. So we can see it's a decent one there. In terms of the overall analysts make up, there are still six sells. So it is not a unanimous view that this is a buy.

But as we can say, 15 it still much more buyers and sellers on out of that's a decent one to watch at the open today. Then we got some M&A. This time we're over in the wire sector so it's got Italy's prison in a maker of cables for telecoms and energy spending €3.9 billion to buy a US rival called Encore Wire. They say this will help them grow their sales by around 30%. Combined, the two companies will have net sales per year of 7 billion, according to the company. Both of them have been on a decent run, mostly due to the broader market move that we've seen since the back end of last year.

The actual premium is not huge. It's only around 10%. But Encore is also listed so that one should get a boost. Keep an eye on president and isolate and also anchor wire over in New York today. All right, our equities reporter there, Joe Easton, walk walking us excuse me through some of the stocks to watch. We thank you so much for bringing the talks. He'll be back and forth when the market opens to walk us through again some of the major moves that we see on the session. But let's talk a little bit about one of

the major corporate stories that we haven't touched on yet. And that, of course, is Apple guy. We talk over and over again about Apple kind of facing a lot of the troubles in China, dealing with supply chains, starting and stopping projects with their EV space. Now new data coming out saying their iPhone market outside of China is seeing a slump as well. They are an iPhone maker. That is this is this is so much of what they do. You can talk about what's happening at the macs and the m4 chips and the fact they're getting into A.I.. But the the iPhone matters so much.

Apple was actually quite a strong performer Friday, which I thought was really too. The market certainly seems to have latched on more to the idea that there is a role to play for effectively a hardware maker in the AI story. But if China's struggling, that's that's a hard that's a hard hill to get over. Well, Microsoft is proving that a hardware maker can actually succeed. And I, I think what's interesting about

Apple, though, is that and we talked to, I believe, Matt Bloxham and some of the kind of tech analysts about this as well as that, because it's an iPhone maker. Yep. Some of those moves into AI or moves into watches or cars mean less in terms of the upside. I think the rally that we saw on Friday was such a reaction to the stock really just taking such a tumble. Yeah, some part of me wonders how much of this was just kind of a little bit of a retracement, if you will, this huge element of that. And I also wonder if, given that that

has been beaten up, if you're looking at a risk off kind of environment, do you want to go back into Apple? It's kind of a safe trade, isn't it? Yeah, it's a it's a bond effectively in so many ways. Look out this morning for some of the read across here in Europe. So look at what's happening with SD Micro and various other suppliers into the into the Apple supply chain. So Osram as well could be a story as

well. So that could be something that the what do we watch out for in terms of the stock story this morning? But broadly it feels like more of a we're backing out of the risk of trade that we had out on Friday as a result of the geopolitics this weekend. Anyway, the market opening is about to happen. We'll take you through that. That is what the futures are signaling right now, broadly positive. We'll get the details in just a moment.

This is live in. 20 folks, Monday the 15th. We're trying to figure out exactly what the market implications are of what happened this weekend.

The geopolitics, obviously, front and center felt like it was largely priced in Friday. Today feels like maybe a little bit of a sigh of relief. It could have been worse. Seems to have been the narrative. We don't know what's going to happen next, but at the moment, it looks like we're going to see a fairly positive trade this morning when it comes to equities.

But you're seeing a very volatile commodity session. You're seeing it in gold over the weekend from hitting 2400 an ounce. You're seeing it in some of the oil names. They're kind of being a little sanguine in terms of reaction because supply is still very much a question. But I wonder if we see a magnified move in the oil names are Shell, your BP, your total as well. And then you mentioned the miners off the perhaps the LME right through that we that we have. Yeah.

We're going to see I think people are trying to still understand at the moment metals are higher but do they do they then fall on the back of it. Who does this impact the most and over what time frame. I think that's a really difficult one to try and figure out for the market at the moment to try and price that in. But metals have been generally on a tear of late, so some of the copper miners, etc.

I've been doing well. Shell was up very strongly on Friday though. Yeah. So you could see definitely an unwind about trade. What's the apple read across I think this morning into some of the subcomponent suppliers into the iPhone. So I think that could affect stocks like Osram so so look for maybe some effect there.

But I think more broadly, I think this is going to be a really just three week. You got Goldman Sachs out with numbers still kind of later on today. Jp morgan got really battered Friday, as I say. What is the rate there on the banks front? Do we start to see some sort of reaction to the banks that we saw there, but also the yields picture? Right, Because we're waiting for the flight of safety to show up. Does that bring that kind of peak margin story forward? Yields are high this morning, not by much, but a little bit. So that's certainly saying into this morning that that is a trade that we going to be watching out for, to see kind of what Goldman says and how that reads into banks like Barclays, maybe here in Europe. Maybe that's where the translation comes

through. Anyway, European markets are open. We'll get a first look at what's happening with the Footsie this morning. That's an oil trading that which may get unwound.

So Shell is a big component. Parts, obviously, of the Footsie 100. And it's likely maybe to see some of that gain that we saw Friday being unwound. Yeah, but broadly, I think probably the kind of the macro top down picture is going to be one of relief. So initially it's ASML doing well. LVMH is out of the gate looking strong as well. Safran and Airbus on the the aerospace side both trading strongly as well and as I say, Shell and BP and Astra.

Actually, the biggest points drag on the European market, which translates into an underperformance going through from London. Yeah, I think the mining stories again, really interesting. Your biggest index contributor this morning is going to be Rio Tinto which which is which is fascinating as is. And you have, of course that defense bid

going into as well. But E-systems is trading higher to me. The airline space is interesting as well, given that so much of the kind of shut down airspace in the Middle East from these conflicts you are already from the last time we had gone through this kind of iteration, seeing a lot of airlines come out and say that part and that conflict there actually ate into their bottom line. Ryanair, for example, was one of them, then spoken about it. There's a number of different ways you can look at this, one of which is you can't fly. It's more difficult to fly to the region. And then there's another story which is more difficult to fly across the region.

Yeah, it's the latter story which is becoming increasingly problematic for European carriers. There's a very small corridor that you can now effectively fly through if you want to go out east. And that now is a huge benefit for carriers like Emirates who can fly over Russia, who have greater access to the region in terms of air space. That was a there was quite a significant shutdown of of airspace this weekend as well. So this is there is a European Airlines story that I think is going to be that is going to be one to watch out for. It's been getting worse and worse. Worse and higher.

Oil prices also don't help that 100%. You're also, again, going back to kind of that aerospace story. If you look at some of your top five movers to the point you've got Airbus moving higher, The defense companies are going to keep bringing it back to because you see that kind of keeping in Rolls-Royce, for example, one of your biggest index contributors this morning on On the Footsie 100. But you were also, I think, still seeing

a bit into some of the banks as well. We talked about this, whether or not there'd be this read through given the some of the US banks are reporting you have Lloyds, Barclays also significantly higher coming out and even Standard Chartered is seeing some pretty decent high volume, although only up 3/10 of 1%. But it looks like enough trades going in there to make a little bit of a difference. Some of the metals companies are gaining. So it's interesting. Norsk Hydro is gaining. That's a big aluminium aluminum producer here in Europe.

So in theory, Russian supply which had been coming in, will no longer be coming in. So that in terms of high prices will benefit them. It was interesting listening to what Kennedy talking about this earlier, that what we saw in the oil market was a kind of rewiring of the global oil markets supply that used to go over there and that goes over here and supply the you of that now comes I mean you get that rewiring effect and a lot of the metals will just simply just get rerouted back over to China but potentially at a discount which will be really interesting as well. See whether that suppresses prices more broadly. But you know what all that volatility creates a tailwind for is company like Glencore, which again is also seeing a big, big tailwind this morning. All that, though, having implications for the inflationary story in the longer term.

Turn right. If you see sustained volatility or sustained bump, not only in the oil story, but in some of these kind of raw materials like aluminum, nickel, etc.. Well, we talked about this in the last couple of weeks. Those are the main raw materials you need for the defense sector as well. So suddenly you have this big demand story and and then you go look at the inflation implications. I think that's what everybody's watching so carefully.

I think the conflict this weekend, what's happening with the metals story, how inflationary will ultimately some of this be inflationary and therefore what do them what do the central banks do? How far are they looking? We got a little bit of sound to play, a little bit of takes from the Fed's daily and call and take a listen to what they had to say when it comes to rate timing. There's absolutely, in my mind no urgency to adjust the policy rate policies in a good place right now. And I need to be fully confident that inflation is on track to come down to 2%, which is our definition of price stability before we would consider a rate cut. Virgin. And I see lots of reasons for patience. And over the longer term, I think we'll. My expectation is that we will ease and that over the longer term inflation, interest rates will be at lower levels.

My baseline would still have a starting to ease later this year, but when I see is likely to be later than I had been previously thinking. Joining us now, Christina Camp Maney, senior portfolio manager for the global debt Team over INVESCO. It's a pleasure to have you on this side of the Atlantic. I'm thrilled to have to see you. Let's talk a little bit about this geopolitical conflict and the read through here. Famously, we're talking about inflation. We're talking about these raw materials kind of driving up the inflationary story. We even have Larry Summers, for example,

talking about a potential hike down the road instead of a cut. Very contrarian take. But central banks don't hike in the face of geopolitical conflicts where the two for us look, I'm not the geopolitical expert here, and I think there's a lot of, as you guys said, us a little bit of a sigh of relief that maybe we are avoiding the worse. But I think the point you drive on the inflation front is what makes it most challenging for the central banks who are already in this rock and a hard place with really resilient growth in the US.

But honestly, globally as well. We've seen the case for stronger growth and then inflation's been stickier. So I think that they're weighing the two. I think we still I think our one confidence is that the path is still to easier policy.

From here you have people that have shifted and swung the other way, but I think it's a little bit too extreme. So that flight to safety story or that kind of bond bull market that we were so sure was going to come six months ago, where did it go? How far down the road has it been pushed? Look, we still think that there is a case that the Fed can potentially ease a few times this year. Last week's CPI brings the hurdle higher for the Fed to start. I think other central banks, you're starting to see more of a case for central bank divergence and more confidence elsewhere. Because you've had this US exceptionalism story and the Fed, there's more divergence even amo

2024-04-22 18:36

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