Powell Keeps Rate Cuts on Table But Leaves Timing Less Certain

Powell Keeps Rate Cuts on Table But Leaves Timing Less Certain | Daybreak: Europe 05/02/2024

Good morning.
This is Bloomberg Daybreak Europe.
I’m Tom Mackenzie in London.
These are the stories that set your
agenda higher for longer.
That is the message from the Fed.
After the central bank holds rates for a
sixth time in a row.
Fed Chair Jerome Powell keeps cuts on
the table, but the timing is less than
certain.
I do think it’s clear that Fed policy is
restrictive.
I think it’s unlikely that the next
policy rate move will be a hike.
Most stocks in Asia rise after the Fed
stands pat the yen whipsaw as though
tumbling in the session, paring a rapid
3% rally on suspected intervention.
Plus, another big day for earnings in
Europe.
Standard Chartered reports a pre-tax
profit beats both Shell and Novo Nordisk
are also due to reports.
But first, IAG and this is the redhead
the analysts have been scrutinising the
details around the buyback and this is
the news coming through from IAG, the
Dutch lender coming through with another
two and a half billion euros share
buyback following on from that previous
two and a half billion euros share
buyback.
So another share buyback rewarding
investors with additional cash coming
through from IAG in terms of net
interest income.
This was also being scrutinised by the
analysts as well, coming in essentially
in line with the estimates back in line
with the estimates at €3.83 billion,
that is nine net interest income.
In terms of net income for the first
quarter, it was a beat for IAG, the
lender coming through with a net income
of 1.6 billion, just shy of €1.6 billion
above the estimates of 1.45 billion, IAG
saying is aided, by the way, 99,000
primary customers in the quarter.
But the key line is the buyback of two
and a half billion euros.
I’m going to be speaking, by the way, to
the CFO of IAG in the next 15 minutes or
so, that interview at 6:15 a.m..
So stay with us for the lines from the
CFO and the reaction to the details and
then he’s coming through from that Dutch
lender.
Let’s check in on these markets right
now, of course, digesting what we heard
from Jay Powell and the Fed.
No surprise that they held, of course,
at around 5.2, 5%.
But it was the language from Jay Powell
pushing back on the views from some an
outlier view that maybe hikes or in the
end, he pushed back on that and says
that cuts are still possible this year.
But again, the timing is uncertain.
European stock futures then currently
lower by 2/10 of a percent.
Footsie 100 futures pointing to
additional gains of 31%, 31 points, I
should say, up 4/10 of a percent.
S&P futures looking to add 5/10 of a
percent on that after ending down in the
session yesterday.
Nasdaq futures looking to gain around
150 points, putting higher by 7/10 of a
percent.
Of course, the earnings story important
in the US as well with Apple Crossing
with their earnings later today across
asset 494.
Currently on the two year you just see a
move lower in yields yesterday on the
back of the commentary from Jay Powell
back below 5% at the front since the yen
of course whipsawing we’ll get the
details on that story 155 on the yen
right now down 8/10 percent again after
the rally that we saw yesterday, $83 a
barrel, just below 84 on brent up 6/10
of a percent.
Gold’s holding firm on expectations that
a cut is still possible from the Federal
Reserve 2318 per troy ounce on gold.
This is more breaking lines coming
through from ArcelorMittal in terms of
EBIDTA for the first quarter, coming
through with a decent beat, then 1.96
billion USD, close to 2 billion USD in
the first quarter for ArcelorMittal,
above the estimates of 1.71 billion is a
beat coming through from that company as
well.
Bringing more details as we get it,
let’s cross over to Singapore, where
Abraham is standing by with a check on
the Asian markets able.
Yeah.
Tom We’re seeing a mixed bag in stock
markets in the region.
The Fed not giving much to the Japanese
or the South Korean stock market.
Investors, where we are seeing a rally
is in the Hang Seng that is on track for
its eighth session of gains.
This would be its longest winning streak
since 2018.
And this is pretty impressive
considering how it’s doing this in the
absence of a crucial bit of support for
its world beating rally mainland
investors, because China is, as you
know, shot a lot of bottom fishing has
been going on.
Chinese stocks have become too cheap to
ignore.
But let’s flip the board and take a look
at the sectors that are responsible for
a large part of this.
It is the Chinese tech names, your meat
ones, your 10 seconds that are due to
report or expect it to in the middle of
the month.
And the idea here, I think, is partially
to do with how the US counterparts have
been faring pretty well this earnings
season and maybe the Chinese names can
do similar.
Now we’re also keeping a close watch on
the real estate developers listed in
Hong Kong.
Sentiment was seems to be turning.
We did get Beijing loosening some of
those home buying restrictions and the
idea potentially coming through here
from Bloomberg intelligence that we
could see similar moves on major cities
in China.
But let’s take a look here at what we’re
seeing in the currency space, because
that is where we’re seeing more of their
relief, their reprieve coming through
the Korean one Thai buy Philippine peso,
they’re all gaining ground against the
greenback is bracing for that more
hawkish Fed, which we didn’t quite get.
Let’s foot the ball because the currency
that didn’t benefit, I think as you know
time is that of the Japanese yen.
And this is a currency that hit 1575 and
then was quickly brought back to 153.
And this smells a lot like intervention.
We’ve seen three such sharp moves this
week.
The yen bears are back for now with the
yen pushing towards the 156 handle.
They have the fundamentals on their
side.
I have to say, as it’s really been about
the yield gap, especially after the FOMC
today, Tom.
Abraham, thank you very much indeed.
We’ll stay on the implications, of
course, the FOMC decision.
Fed Chair Jerome Powell keeping hopes
alive then for a rate cut this year.
But he also says a burst of inflation
has reduced confidence that price
pressures are ebbing.
We do not expect that it will be
appropriate to reduce the target range
for the federal funds rate until we have
gained greater confidence that inflation
is moving sustainably toward 2% so far
this year.
The data have not given us that greater
confidence in particular, and as I noted
earlier, readings on inflation have come
in above expectations.
It is likely that gaining such greater
confidence will take longer than
previously expected.
Okay, let’s bring in Bloomberg Mike
Ryan, for further analysis.
And Mark, if this was a hawkish pivot
from Jay Powell, it was the dovish end
of the spectrum, it seems.
Is this a fed with an easing bias?
I’m certainly Mr.
Powell, I think, has I would very much
like to to lower interest rates.
If you think back to December, he was
the one that really kicked off the idea
there could be several rate cuts this
year.
He was excited that inflation was coming
down towards his target.
And of course, there was at one point
there was data which was showing that on
an annualized basis we had one of the
key readings at 1.9% below his key 2%
threshold.
A lot has happened since then.
As we know, there’s been several CPI
prints have been higher than expected, a
lot of backtracking.
Also some strong jobs numbers.
And here we are.
We come to the situation in May where
really it’s very difficult to see that
they could even manage one rate cut.
But at least he’s keeping the door open
for that later in the year.
More importantly, in this specific
meeting, what he had to say about
quantitative tightening was much more
helpful.
And that was the slight surprise of all
the things that happened here.
He gave some hope to the bond market,
especially, which in turn gives a little
bit to the equity market by reducing
that quantitative tightening quite
substantially more so than people
expected and at a quicker pace.
It’s going to start from June.
Some people thought it would only happen
around the third quarter of the year, so
he’s going to reduce it by more than
half and it takes a lot of pressure off
the bond market.
If treasuries are in a better state of
health, it means that the upward
pressure on yields are probably eased
slightly.
Doesn’t mean to say that yields are
going to start tumbling by any means,
but the fact that they’ll be in a more
stable situation, equity people can look
at that with some hope and then you can
look at the foreign exchange market as
well.
But it would take away a little bit of
the pressure, particularly on dollar
yen, which obviously we’ve been talking
about a lot recently.
Really, really interesting.
Really glad you zeroed in on the Q
lines.
Of course, reducing that cap, as you
say.
And unless issue it’s less bond issuance
for this bond market to have to digest
and how that impacts equities and of
course, of course flowing over to the
yen as well when it comes to what to
watch for next, then we get the jobs
data on Friday.
There’s a view from some being
articulated yesterday.
If you get if you get a solid number
above 4% on unemployment, that could
that could that could push this easing
bias, if that is one for the Fed up even
further in that direction.
In terms of the jobs data, how
consequential could it be in terms of
changing the views on this Fed come
Friday?
I think I think they’re always important
jobs numbers definitely is one of the
big ones.
But when you think it is plus or -4% in
the grand scheme of things, that’s a
very strong employment situation.
There’s not much the Fed can do that
really.
It’s all kinds of inflation impacts,
which are much more important to their
calculations.
And just this week we saw some of the
earnings numbers were a bit on the high
side as well.
So clearly, if workers are getting more
money than expected, that’ll feed back
into the economy as well.
So for now, it’s really all about
inflation impacts as far as they’re
concerned.
And until they see a significant
improvement and now the the onus is very
much it hasn’t just got to improve.
It’s got to improve materially because
there have been so many numbers which
were higher than expected.
So they’re really back almost to square
one, really.
They’ve got to see a few months of
consecutive CPI decreases and then they
can start talking about rate cuts again.
Bloomberg analyst Mark Cranfield with
the analysis on what we’ve been hearing
from Japan on the Fed.
Thank you very much indeed for the
macro.
To the corporate facing stories now and
Apple’s results of course coming in
after the US market close today.
Revenue expected to contract as the tech
giant faces a continued slowdown amid a
weak Chinese market.
Regulatory pressures and a strategy
concerns.
Let’s cross over to Bloomberg’s
executive editor for Asia technology
pizza elderman Pizza.
What can we expect from the numbers
today?
How much of this is going to be a China
story for Apple?
Yeah, all eyes are on Apple at the
moment, trying to figure out exactly how
the company is navigating some of these
these these resistant forces ahead of
it.
At this point, it’s an unusual place for
Apple.
I mean, they’ve had such an amazing run
over the past few years, but now they’re
struggling.
We could see revenue decline yet again
this quarter.
The expectations are that revenue will
be down about 5%.
A lot of that is because of the
smartphone market.
And as you alluded to, China in
particular has been a challenging market
for them.
iPhones, of course, have been the big
driver of growth at Apple for many
years.
In China right now, they’re facing some
headwinds because of the resurgence of
Weiwei in particular, but also Xiaomi
and other company in the market.
So we’ve seen them lose quite a bit of
ground within China to those two
companies, especially Weiwei, as it’s
now gotten back into the smartphone
market after the US blacklisting that
caused some problems for them.
Now, there’s a lot of nationalistic,
driven demand for wall phones and for
Xiaomi phones in particular.
One of the things for Apple, though, is
that they are they’re struggling within
China.
They’re trying to figure out how they
can revive demand there.
They’ve discounted a little bit.
They’re opening up some new stores, too.
But it’s still been a challenge for
them.
And we’ll see whether they’re able to
talk about the future and their
prospects for reviving.
Another a couple of key things that
people will focus in on or the Vision
pro this headset that they introduce
with much fanfare.
They view that as one of their big long
term bets, and they hope that that will
show some promising results.
And also they want to hear about Apple’s
A.I.
strategy.
We have not heard as much from them as
we have from, say, Microsoft or Google
at this point.
People really want to understand how
Apple is going to integrate into their
products in the future.
Peter on that.
Just putting a pin in the in the eye
component, because I think that’s really
important.
A couple of the honest notes points
pointing that out, the lack of clarity
on that front in terms of that strategy,
as you say, are we expecting details
today on the back of the earnings call
or do we have to wait for one of their
big conferences, one of their big events
for the detail to come through?
Where do we where do we stand on this
strategy?
Well, we certainly will get questions
about AIG.
You’re right.
Other companies have have done more to
articulate exactly what their strategy
is going to be.
Microsoft perhaps has been most
aggressive.
The CEO of Microsoft, Satya Nadella, is
in Asia right now explaining how much
they’re going to invest in A.I.
data centers around the world,
particularly big countries like
Indonesia, India, Malaysia and Japan in
particular.
Apple has not really gone down that road
so far.
They’ll get questions about their
strategy.
But what you’re alluding to is exactly
right.
They tend to want to have these big
events where they can have a complete,
well-thought out, very detailed strategy
as they introduce it.
We haven’t seen that from Apple yet with
I certainly they’re working on this.
They’re working with partner, probably
talking with many different partners at
this point to try to figure out exactly
how they’re going to incorporate into
their products in the future, their
services in the future.
So certainly, Tim Cook will get a lot of
questions about
at this call.
Okay.
Peter Elston, Bloomberg’s executive
editor for Asia Technologies, setting us
up really nicely for those important
Apple earnings.
Peter, thank you.
To the banking space now.
We’re going to get more details and an
interview with the CFO of IAG after that
company announces a two and a half
billion euro share buyback, being joined
by the CFO of the Dutch bank to talk
about those earnings.
That interview in just under 10 minutes.
This is Bloomberg.
Welcome back to Bloomberg Daybreak
Europe.
Now, Bloomberg has learned the U.S.
and Saudi Arabia are closing in on an
historic pact offering the kingdom’s
security guarantees and a path to
diplomatic ties with Israel.
Sources say officials are optimistic a
deal can be reached within weeks,
although obstacles remain.
Israel is expected to be offered a
choice to join the deal dependent on
ending the Gaza war and agreeing to a
path towards Palestinian statehood.
New York police have arrested almost 300
people, breaking up escalating protests
over the Israel-Hamas war at two
colleges.
The arrests were made at Columbia
University and City College of New York.
Police officials say outside agitators
joined the Columbia protest, but it’s
still determining how many non-students
were arrested.
Alphabet paid Apple $20 billion in 2022
for Google to be the default search
engine in the Safari Web browser.
The level of the payments were revealed
in newly unsealed court documents in the
US Justice Department’s antitrust
lawsuit against Google.
The deal between the tech giants is at
the heart of the landmark case, which
alleges Google has illegally monopolize
the market for online search and related
advertising.
Qualcomm shares rose after the world’s
biggest seller of smartphone processors
gave an upbeat forecast for sales and
profit.
The outlook signals the smartphone
market has begun to bounce back,
tracking with Qualcomm’s forecast that
demand would gradually recover this
year.
The US company also reported better than
predicted results for the second
quarter.
Coming up, IAG announcing a two and a
half billion euro share buyback.
I’m going to be joined by the CFO of the
Dutch bank to talk earnings.
That conversation is next.
This is Bloomberg.
Welcome back to Bloomberg Daybreak
Europe.
Now IAG has reported first quarter
profit beating estimates.
The biggest bank in the Netherlands has
also announced a two and a half billion
euro share buyback.
Very pleased to say.
I’m joined now from Amsterdam by the
CFO, the Chief Financial Officer of IAG,
to not take issue with circle, to not
say thank you for your time this
morning.
Let’s start with the buyback, then.
Two and a half billion euros.
What does it tell us about your
ambitions around returning cash to
shareholders?
Are we at a peak now in terms of
buybacks?
Thank you, Tom.
I think we had a really strong start to
2024.
We continue to accumulate customer loan
growth, a strong deposit growth, a
strong while particularly mark this
quarter is healthy generation, which has
been exceptionally strong this quarter.
You know, costs are on track.
Risk cost remains benign.
Below us, it’s through the cycle
average.
And that capital generation has allowed
us to do this two and a half billion
share buyback.
And to address your question, you know,
we have targeted that we would reduce
the level of capital that we operate out
from our current 14 and a half percent
or 14.8% to around 12 and a half
percent.
So we are trying to make that conversion
through share buybacks and other cash
distribution over the next two years.
So, you know, this is part of our plan
to to kind of return capital or return
cash to our shareholders.
In step by step function.
Okay.
So to be clear, we’re not at peak
buyback yet for the business as we weigh
up, for example, interest rate cuts from
the ECB.
Well, what I can say is that we look at
many factors in terms of determining the
size of our share buyback, capital
generation, you know, the level of risk
that we see, the stresses that we see
and also the commitment remains that we
would look to bring our capital levels
down to 12 and a half over the coming
period.
And we stick to that.
Okay.
Talk to us about I want to get on to
fees.
But before we get that net interest
income, are we at a peak kind of level
when it comes to any given again, given
expectations that rates will be coming
down likely in June from the ECB?
Yeah, I think that that’s one of the big
drivers of results for European banks
and including AMG.
I was looking at the Fed chairman’s
discussion this morning about Federal
Reserve maybe delaying rate cuts that
would have a read across to the ECB
decision making.
So the market expectation is that June
will be the first rate cut, but I think
the shape of that rate cut will be more
benign than perhaps even the market
expected.
And with that in mind, what I want to
say is that we believe we can operate
profitably and in a structural way when
rates are at 4% and we expect that we
can operate quite profitably even if
rates comes down to two and a half to
75.
So I think we are quite optimistic and
bullish about the resilience of our
interest income.
And you talked about the strength of the
fee income as well.
What is your outlook for that?
How does that story evolve, do you
think, in the quarters ahead?
Yes.
One of the the main strategy for energy
is to become less interest rate driven,
more capital lite as a business model.
So we target fee income growth at around
5 to 10%.
And what do what we see now is that the
first quarter we grew fees by 12%.
So it gives us a good base to to make
sure that we stay within that 5 to 10%
outlook.
And we are confident of reaching that
levels in 2024.
What is demand for mortgages and
corporate loans looking like and what it
tells us about the strength of the Dutch
of the eurozone economy?
Yeah, I think particularly on mortgages,
we do see volumes picking up.
You see this big shock with rates going
up.
That mortgage demand has declined for a
number of quarters, but the resumption
of lending growth and the deal in the
pipeline is getting stronger.
Margins are improving.
So origination margin is beginning to
improve from a low in 2023.
And I think in the wholesale bank, we
also see the same phenomena we do in
pipeline building up strongly.
So we are we are quite optimistic about
resumption of loan growth on the back of
potentially lower interest rates in the
coming period.
And any concerns at all about about
credit quality.
Are you seeing any any examples of that
deteriorating?
Not yet.
I think we will see our stage three
ratios at one and a half percent
historic low risk, cos this quarter
remains benign very much below our
through the cycle average.
So I think this is a credit to the
resilience of our customer base and a
resilience to the euro economy as a
whole that, you know, the situation
remains quite resilient and solid with I
think driven to a certain degree by
quite tight labor market and low
unemployment.
So I think we are optimistic about the
condition of our credit book.
Tonight, I want to ask you about your
exposure to Russia, because early on in
the conflict, I said that they would
wind down, that you would wind down the
operations there at a speed and pace
that was aligned with the interests of
shareholders and your customers.
Are you under pressure at all from from
regulators, from the ECB, primarily to
speed up that run down?
Yeah, we we have three points we want to
make here.
We have no future in Russia.
It’s been made very clear that what is
our intention?
We have reduced our exposure to Russia
from the peak at the beginning of the
war by over 75%.
And we will continue to do de-risk and
also have an orderly way to bring the
level of exposure to Russia down.
We have constructive dialogue with our
regulators on this point and we are
progressing at pace in terms of
de-risking from my exposure to Russia.
Okay.
Before we let you go, return on equity,
the goal, the target of 12% through
2026.
What’s your level of confidence that you
hit that target?
I.
That’s it.
Hi.
Okay.
You’re going to hit that target.
20, 28, 12%.
Okay.
I think we’ve been just a today coming
up in a we have an Investor Day coming
up in June 17.
I will give a long outlook on our our
return on equity targets then.
Okay.
We’re going to take that confidence vote
and not say.
First of all, thank you very much indeed
for your time.
Of course, on the back of those earnings
have been coming through for IAG, the
CFO of that of the business, of the
Dutch lender coming through, of course,
with the buyback as well, an additional
two and a half billion euros.
Quickly checking in on Standard
Chartered because that bank also came
through with a decent B across most
metrics.
The wealth business doing really well.
Trading will start picking up for this
company.
The lender, of course, with exposure to
Asia gaining 5% in the Hong Kong session
so far.
We’ll watch that at the Open in the U.K.
as well at 8 a.m.
So Standard Chartered, A, B, stocks
rising, plenty more coming up.
This is Bloomberg.
Good morning.
This is Bloomberg Daybreak European Tom
Mackenzie in London.
These are the stories that set your
agenda higher for longer.
That is the message from the Fed.
After the central bank holds rates for a
sixth time in a row.
Fed Chair Jerome Powell keeps cuts on
the table, but the timing is less
certain.
I do think it’s clear that that policy
is restrictive.
I think it’s unlikely that the next
policy rate move will be a hike.
Stocks in Asia rise after the Fed stands
pat.
The yen whipsawed tumbling in the
session, paring a rapid 3% rally on
suspected intervention.
Plus, IAG announces a two and a half
billion euro share buyback after the
Dutch bank topped profit estimates in
the first quarter.
Standard Chartered also rising in Hong
Kong after its own profits beat.
Here, though, is the biggest European
company by market cap Novo Nordisk
coming through with results Novo
quadrupling the number of patients
starting on Wegovy in the U.S.
quadrupling the number of patients
starting on that weight loss drug in the
US.
We knew that was scrutiny from analysts
on that, particularly around supply
chains.
Novo sees full year sales at a constant
ex, up 19 to 27% higher than the
estimates at the top end.
The estimates had seen full year sales
at around 26% at the top end.
Now novo guiding for up to 27% in terms
of full year sales at constant effects,
other lines coming through in terms of
sales and in terms of the particular
make up of the portfolio, of course, of
drugs.
First quarter as epic sales coming in
above the estimates, 27 close to 28
billion Danish trader that was above the
estimates.
Looking for further details on supply
chains as well, the investment around
Wegovy.
But the top line is that they are
boosting quadrupling again the pickup in
terms of wegovy in the US first quarter
obesity care sales coming in slightly
above slightly below the estimates 11
billion Danish quarter.
The estimates have been for 12.3
billion.
And in terms of GLP one sales, those
coming in modestly above the estimates
WEGOVY sales, this is important slightly
below the estimates.
In fact in the first quarter, weak sales
coming in at 9.38 billion below the
estimates of 10.5.
Whether this is a supply question versus
demand is going to be interesting.
More likely it’s a supply question.
We know they’ve been building out
capacity again in terms of margin for
the first quarter.
Novo Nordisk coming in with margin just
above the estimates, 84.8% is the
margin, slightly above the estimates,
Novo saying that US demand for WEGOVY
still exceeds supply, The demand still
exceeds supply for Wegovy the weight
loss drug in the US, again, they have
quadrupled the number of patients
starting on that drug in that crucial US
market, keeping that full year sales in
terms of the expectation, raising the
bar slightly 27% above the estimates.
This is a story, of course we will keep
across you for you throughout the next
ounce when is speaking as well to the
CFO of Novo Nordisk speaking to
Bloomberg later this morning.
That interview 9:05 a.m.
UK time on the Pulse first quarter
pre-tax profit coming in above the
estimates 32 billion Danish kroner above
the estimates of just shy of 30 billion.
Let’s check in on these markets right
now.
Earnings is part of the mix.
Absolutely.
The beats coming through from the
European lenders, Standard Chartered
with of course, exposure to Asia, but
also IAG and the buyback there.
But we can see it continue, of course,
to weigh up what we’ve been hearing from
the Fed, pushing back on the view from
some that maybe an additional hike is
needed.
Japan pushing back on that.
Cuts are still possible this year, but
this is a patient fed higher for longer
European stocks pointing lower by about
a 10th of a percent.
UK futures footsie one on futures
looking to add 36 points.
S&P futures currently looking to add 25
points, up 5/10 of a percent after
ending the session lower yesterday.
NASDAQ futures pointed to gains of 6/10
of a percent.
Let’s flip the board and look cross and
then the yen again, the volatility that
we use the word whipsaw and accurately.
So because it has been dramatic, the
moves once again, expectations that the
BOJ, the Ministry of Finance, I should
say, intervened again.
We have not, of course, had concrete
confirmation of that.
155 Currently the Japanese yen down 7/10
of a percent after it popped 3%
yesterday.
The two year back below 5% for 94.
Yields came down on the back of the
presser yesterday from Jay Powell,
Brent, $84 a pound just shy of that, up
6/10 of a percent and gold’s 2314 per
troy ounce.
Just a little softer now for the yellow
metal, down 2/10 of a percent.
Now to geopolitics and the Middle East.
Bloomberg learning that the US and Saudi
Arabia are nearing an historic deal that
could potentially reshape security in
the Middle East.
Let’s get the details from our senior
editor, Bill Faries.
Bill, what do we know about the
potential details of what could be a
really consequential deal?
Right, Tom?
Well, this is a deal that was being
discussed last year ahead of the
outbreak of violence in October between
Israel and Hamas.
Those talks have resumed in recent weeks
and seem to be accelerating.
There’s a lot of different components to
it.
One big part of it would be getting
Saudi Arabia and Israel on the path
toward basically having diplomatic
relations and normalization of ties that
would require an end, a quick end to
this war in Gaza.
And it would also require Prime Minister
Benjamin Netanyahu to agree on a pathway
to Palestinian statehood.
That’s something that he and his
coalition have been very much against
since he returned to power.
There would also be a lot for the Saudi
Arabia and the US in this kind of an
agreement.
It would effectively give Saudi Arabia a
U.S.
security guarantee that kind of an
agreement might require U.S.
Senate approval.
But in return, Saudi Arabia may also get
access to some high tech weaponry that
it doesn’t currently have.
Saudi Arabia could also be allowed to
pursue a civilian nuclear program, and
that would give the U.S.
access to Saudi uranium stockpiles.
So there are a lot of there are a lot of
potential wins for both sides here, but
it is very much hanging on some other
issues that are going to be difficult to
resolve.
So what, Bill?
What are those issues?
What what are the hurdles that could get
in the way of this of this deal?
Well, if Israel wants to be a part of
this agreement and for Netanyahu,
getting a deal with Saudi Arabia has
long been one of his goals.
But it would conflict with another one
of his political priorities now, which
is basically avoiding having to accept a
second, a two state solution to the
Palestinian crisis.
So he would have to decide which of
those two goals is really politically
more important to him right now.
It could mean the end of his coalition
government.
There would be a lot of complications
with that, obviously.
And also, the biggest hurdle would be
winding down this conflict in in Gaza.
And, you know, we’ve seen with Israeli
troops poised to enter Rafah for weeks
now, that there does not appear to be a
solution in sight.
There is talk about a six week, six week
long ceasefire.
But that’s also been something that’s
been going on for a while.
So a lot of hurdles.
But talks are advancing, I think, on the
Saudi and U.S.
sides in the hope that some progress can
get made.
Okay.
Senior editor Bill Farris on the
potential consequences of what could be
a seismic deal for that region.
Bill, thank you very much indeed.
Let’s stay with the region then and
check in on oil, because, of course,
part of the mix in terms of the
movements we’ve seen over the last few
days, what’s been quite pronounced
around oil, the softness that’s come
through, that’s turned around a little
bit today.
But part of the focus has been on those
talks around a potential ceasefire in
Gaza, but also the inventory buildup,
the stockpile build up in the US as
well.
And that data have pressured the oil
price in the last few days.
Today, Paris on the losses to some
extent 6/10 of a percent is the gain
that’s coming through $4.83, about just
shy of 84 $79, while still below the 80
level for WTI, up 6/10 of a percent.
Let’s go to one of the biggest corporate
stories at the moment, though, before we
get those Apple earnings.
Of course, it’s Novo Nordisk, the
biggest European company by market cap
coming through.
Then with the details on its earnings,
raising the guidance in terms of the
full year sales pitch and getting some
detail around the uptake and the demand
for its key weight loss and obesity
drugs in the US, they are looking to
more than quadruple.
In fact, they have more than quadruple
the number of patients starting on
Wegovy in the US.
Let’s get more details that more
analysis and bring in Bloomberg Sun
events in Copenhagen.
Sun to give us the top lines and what’s
what’s driving those results at this
point?
And that’s what you wanted to hear,
right?
Yes.
Novo profits are up once again, up once
again last quarter.
And it is very much driven by sales of
its two drugs, Ocean pig and its
blockbuster drugs.
Really, it was some pig.
And we go by these two drugs are very
popular among patients because they have
helped people lose weight.
Demand is extremely high, so high that
Novo simply can’t keep up.
Nor today is saying that demand is still
exceeding supply.
So no one is really selling everything
it can make.
And it’s trying hard to to make more.
And that’s really something that
investors are following.
And Novo has a first mover advantage,
but it will only really be able to
capitalize on that if it is able to also
ramp up supply.
Well, that is a key question, as you
say.
So what progress has been made then by
the company to to work through some of
those supply issues?
How is that going?
Yeah, well, there is some progress.
Or we’ve seen a new US released figures
today saying that now 20,000 patients
start on we go we every single week in
the US that number was 5000 back in
December.
So we are seeing kind of an increase in
the number of patients that can start on
on its drugs.
And then of course, we’ve also seen a
lot of announcements of investments into
expanding its factories and and also to
buy new manufacturing facilities in the
US.
But of course, those investments are
taking a bit of time to translate into
also bigger supply.
Okay, Sonia, first, thank you very much
indeed, jumping on those earnings for us
around Novo Nordisk, of course, really
consequential given the size of the
market cap of that company.
We’ll keep cross that story throughout
the next few hours and, of course, be
speaking to the CFO as well at 905 Sun
events.
Thank you very much indeed.
Out of Copenhagen now, we will be
speaking, as I said, to the chief
financial officer of that company, 95 on
the Pulse.
Coming up, China’s stock climate envoy
warns West, the west, the west.
The decoupling from Beijing could cost
the global economy trillions of dollars.
More from our exclusive interview with
Liu Min.
That is up next.
This is Bloomberg.
Welcome back to Bloomberg Daybreak
Europe.
Happy Thursday.
Now the Fed has signaled fresh concerns
about inflation, but Chair Jerome Powell
reassured investors a rate hike is
unlikely.
Let’s get some analysis then from Nina
Shero, CEO of the Center for Economics
and Business Research.
Nina, thank you for joining us.
Let’s start with the top line then.
How what you heard from Jay Powell, what
you saw from the statement changes your
view in terms of the policy response
from the Fed in the months and quarters
ahead.
We’re actually going to stick with our
prediction that the first cut from the
Fed is coming in September.
And that is something we were expecting
before yesterday’s minutes and
yesterday’s press conference as well.
We were never certainly not under our
central forecast, expecting a rate hike.
But if there was one surprise from
yesterday’s yesterday’s events, it’s how
firmly.
Powell I would say put those guesses two
to bed.
You know, the message was very much the
bar would be very, very, very high for
the Fed to to do another hike.
And I would have been expecting
messaging to be a little bit softer
around, you know, we will be data
dependent.
We will see the path of inflation
progress towards 2%.
Target has stalled.
So I was a little bit surprised by the
tone of his messaging, but we’re
sticking with our expectations that
there will be a cut coming in September.
Nina, we’ve been getting some reaction
from other guests as well and from Jay
Powell himself.
Let’s listen in to the Fed chair and
then I’ll bring you back in for your
analysis.
In recent months, inflation has shown a
lack of further progress toward our 2%
objective, and we remain highly
attentive to inflation risks.
It is likely that gaining such greater
confidence will take longer than
previously expected.
I think it’s unlikely that the next
policy rate move will be a hike.
I do think it’s clear that that policy
is restrictive and we believe over time
it will be sufficiently restrictive.
I don’t know how long it’ll take.
I you know, I can just say
that when we get that confidence, then
then rate cuts will be will be in scope.
See if anybody mentions in any way the
pending election.
It just isn’t part of our thinking.
It’s not what we’re hired to do.
We just don’t go down that road.
If you go down that road where you stop.
Nina, you could make the argument.
I think that maybe there’s a bit of a
disconnect from what we hear from the
Fed chair versus some of the other
colleagues on the FOMC.
Is this a Fed chair at least that has an
easing bias, as in if the jobs picture
in the US becomes more concerning,
they’re more likely to cut than they are
to raise rates in the face of stickier
inflation.
I can I can see why.
Yes, I would make that that case.
And I think there is, you know, some
some evidence for that.
Also, we I think we didn’t hear it in
the clips that was there, but there was
several mentions yesterday of how much
progress has been made on on inflation
already despite the reasons stole.
So I think, you know, if you dissect the
comments, you could find some evidence
of of that.
I think also from the clips we just saw
and another bit that sticks out is, you
know, how, you know, the election and
the wider situation is not a part of
their thinking.
And, you know, I think it’s really not a
part of their direct thinking, but it
does inform an important context.
I think it’s what’s become clear is that
the Fed’s job is being made harder by
what’s happening on the fiscal side in
the US, which of course is being driven
by by wider political events and what’s
coming later this year.
Before we move on to the ECB in the
brief, because I know you got views on
that as well in terms of the nonfarm
payrolls that come out later this week,
the jobs story and how that’s evolving
and how that links into the Fed’s
decision making.
The chair did say yesterday that they
are not focusing, you know, that they’re
not targeting wage growth, but they are
obviously taking their their mandate on
the performance of the economy, on the
performance of the labour market
strongly.
And, you know, we have heard that
they’re going to put, if anything, more
emphasis on that.
And it’s very clear from yesterday that
they don’t basically want to harm the
economy too much.
They’re not willing to crash the economy
to get inflation all the way back down
to two target.
So obviously, it is something that
they’re they’re keeping their point,
probably putting increased importance in
becoming in the coming meetings.
I think, you know, yesterday was a
little bit of a of a stalling pattern.
We’re probably going to hear more of an
economic reassessment after the the next
meeting.
But we did hear that they’re very much
focusing on that mandate as well.
Okay, so you hold your view.
That comes through towards the end of
this year from the Federal Reserve, the
ECB and officials there saying June is
very likely.
Can the ECB and BOE a really diverge
from this Federal Reserve?
They can leverage to some extent, not to
a great extent.
So we are now expecting that both the
ECB and the Bank of England will cut
before the Fed does.
We heard yesterday in Powell statement,
and he’s right to point this out, that
there is less room to wait in the
eurozone in the UK because of a much
weaker growth outlook.
And he is absolutely right to point that
out that inflation dynamics are
different.
The energy shock is working itself out,
that it was always less of a factor in
the U.S.
So the inflation picture is different
across the Atlantic and the growth
outlook is much weaker, which really
gives the central banks, you know, less
of a luxury over waiting to see what
inflation does over a slightly longer
term.
Now, they can’t diverge too much, and I
think they might be keeping in mind what
the Fed is doing, the policymakers in in
Europe and the U.K., that is more so
than they let on.
So, you know, we’ve we’ve heard
statements.
We’ve in in Europe, we’ve heard varying
statements.
Some have said that there are more
important considerations in mind.
We’ve even heard some central bankers
say if the U.S.
is holding rates higher for longer,
that’s actually a reason to cut because
it’s going to sort of create a lower
growth environment globally.
So we’ve heard slightly mixed messaging.
I would still expect cuts to come in
from the ECB before the Fed.
But there can be too much divergence
down the line.
So on the back of that, we are expecting
fewer from the ECB rest of the year than
we have.
And I think the U.K.
especially might be reluctant to diverge
too much from other major central banks.
Keeping in mind still the recent history
of all the criticism and still sort of
the ongoing attention around to the lead
hikes that were coming in 2022.
Okay, Nina Scott with the analysis, CEO
of the Center for Economics and Business
Research.
Thank you very much indeed.
Now, China’s top climate chief says
Western decoupling from Beijing could
cost the world trillions of dollars and
impact the energy transition.
The two men spoke exclusively with our
chief North Asia correspond Stephen
Engle.
Take a listen.
If the
Western countries
continue to insist to decouple from
imports of China products for clean
energy, it will cost the world four
maybe additional 6 trillion U.S.
dollars.
And it means that the 20% increase of
the overall cost.
We need to maintain the low cost.
Otherwise, nobody going to afford to
wait for this energy transition process.
And officials in the U.S.
and Europe claim that China is giving
unfair subsidies.
And that has led to the situation we’re
in right now that could distort global
trade in these clean products.
He responded, I think if you push us to
call a European court and to really
going to to to to talk with all Chinese
under president, you can say, oh, these
are renewable energy equipment
technology.
They are innovated and developed and
manufactured by our private companies.
This is very unique, very unique.
I think private companies, normally they
don’t receive any government subsidies.
I think we should really highly
appreciate the dedication, the
contribution by these enterprises.
So after more than a decade of their hot
air force, now we have a chip there,
both solar and wind products, which we
are not affordable to start the energy
transition.
I think this is good for both for China
and the possible world.
While we’re talking about overcapacity,
we have to also talk about the domestic
economy here because, yeah, we’ve been
seeing profitability sink at a lot of
these solar companies and even
companies.
Price wars are driving down their
margins.
What does that do to the climate fight?
If the world is bifurcated on trade.
We’re going to talk about capacity in
two different ways for global demand.
And the way I see it in China, domestic
demand, we’re still in high demand for
the renewable energy products because
for the to come and we are I think we’re
determined to increase our renewable
energy capacity to a high percentage,
maybe below 80%, I think for the next
decade.
We’re still in the process of increasing
our renewable energy capacity globally.
I think that is much slower than what
China’s.
Where do you see that there will be high
demand for the renewable energy, for the
so so-called overcapacity among the
manufacturers, among our Chinese
manufacturers?
It’s it’s a temporary issue.
It could be a lot of good.
Let it be through this kind of a
competition.
They can continue to improve their their
manufacturing and make them
much more better products.
Okay that what’s China’s special envoy
for climate change speaking exclusively
with Bloomberg’s Stephen Angle.
Plenty more coming up.
This is been day.
The whole game plan is basically
unchanged.
We’re going to keep rates here until
we’re highly confident that we’re going
to get inflation down to 2%.
No hint whatsoever of a rate hike.
I think there’s a lot of relief here
that the chairman stayed true to what
we’ve seen from this chairman.
I think Jay Powell was particularly
disciplined here.
I think he stayed on message very well.
There’s a clear bias towards easing and
he stuck to that.
They’ve left wide open the question of
why has progress been slip in less than
they expected on the inflation front?
The Federal Reserve is not living up to
the commitment on inflation that other
central banks are.
Let that tight policy work for longer.
I think that’s about as far as their
they’re ready to go today.
That’s that’s hawkish and may we’ll see
what hawkish might look like in June.
This is really good for the markets
because here is a Fed that’s telling us
look at the longer term, look where
inflation was and look where we’ve
gotten it to.
Don’t worry about the last couple of
months.
We’ll see what happens there.
So my guess they’re reacting, of course,
to the latest Fed decision.
And Jay Powell comments.
Plenty more earnings interviews, by the
way, coming up this morning, including a
conversation with a CEO of shipping
giant Merced and a CFO of Novo Nordisk.
Stay with us.
This is Bloomberg.

Bloomberg Daybreak Europe is your essential morning viewing to stay ahead. Live from London, we set the agenda for your day, catching you up with overnight markets news from the US and Asia. And we’ll tell you what matters for investors in Europe, giving you insight before trading begins.
Today’s guests: Tanate Phutrakul, CFO of ING, and Nina Skero, CEO of Centre for Economics and Business Research.
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