Stocks Rebound on Strong SpaceX Results; AI Bubble Dispute; Tech Earnings on Deck

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Original language: English

Original video: Stocks Rebound on Strong SpaceX Results; AI Bubble Dispute; Tech Earnings on Deck · Channel: Bloomberg Television · 43:01 · Watch on YouTube

Topics: Markets and economy

Summary

Markets were poised to rebound after stronger-than-expected SpaceX results, with investors also focused on a possible SpaceX–Tesla merger and upcoming earnings from major technology companies. Asian equities rose, while European markets grappled with political risk and diverging bond yields; US markets weighed elevated oil prices and mixed recent trading. Ken Griffin warned that parts of the AI market are almost certainly in a bubble, while Deutsche Bank’s Christian Sewing said he did not see one. Peel Hunt’s Callum Pickering discussed risks from high interest rates, public debt, and concentrated AI investment, and Bank of America’s Bernard Mensah spoke about sovereign yields, supply chains, European investment, and growth.

Key points

SpaceX reported better-than-expected quarterly results, and Elon Musk said special committees at SpaceX and Tesla would examine a potential merger.
Musk described the merger as potentially helping finance a major expansion of AI computing capacity, including up to 10 gigawatts of additional compute.
Asian equities rebounded, led by technology-heavy markets, while Australia’s NextDC fell sharply after cutting its earnings outlook amid power-supply delays.
European bond markets diverged, with French-German yield spreads widening amid political uncertainty and UK investors pricing in a possible Bank of England rate hike.
Ken Griffin said bubbles are almost certain to exist within the current AI boom, while arguing that major technological transformations can leave lasting, important companies behind.
Callum Pickering warned that high benchmark interest rates may concentrate investment in AI while other parts of the economy struggle to attract capital.
Pickering said inflation could rise somewhat in the coming months but expected it to fall decisively next year.
Bernard Mensah said sovereign yields warrant close attention and described companies’ growing focus on resilient supply chains and changing globalization patterns.
The program previewed results from Tesla, Meta, IBM, and Texas Instruments, alongside other scheduled economic and business updates.

Chapters

Start	Chapter	Summary
00:02	Global market setup and Asian equities	The program previews the market day, reports an Asian equity rebound, and highlights gains and losses among regional data-center stocks.
02:07	European bonds and US market outlook	European markets weigh earnings, political risks, and diverging bond yields as US indices and oil prices shape the broader outlook.
04:49	SpaceX results and the proposed Tesla merger	SpaceX’s results beat expectations, while Musk backed exploring a merger with Tesla and analysts discussed its financing, synergies, and governance risks.
11:50	The AI bubble debate	Ken Griffin discusses the likelihood of bubbles within the AI boom, while Deutsche Bank’s CEO pushes back on the bubble warning.
15:04	Inflation, data centers, and Ukraine	The program covers UK inflation, data-center IPO plans, OpenAI agent incidents, and US statements and policy debate concerning Ukraine.
21:30	Market recap and economic risks	The hosts revisit market moves and earnings news before Callum Pickering explains concerns about debt, interest rates, and investment concentrated in AI.
31:17	AI investment and the Bank of America interview	The program reports comments from Larry Fink and turns to Bernard Mensah’s views on sovereign yields, corporate financing, and supply-chain resilience.
37:09	Europe, investment, and the UK outlook	Mensah discusses European policy and energy costs, capital for defense and infrastructure, opportunities across regions, and the UK’s fiscal constraints.
42:22	Closing and the day ahead	The interview concludes and the program previews scheduled earnings, central-bank remarks, and the market opening.

Quotes

there’s almost certainly bubbles within this moment in time. — 12:54

often coincide with these giant technological transformations. — 14:33

It’s all getting concentrated above the interest rate threshold, which is basically AI — 26:54

I think we’re in a period of price discovery. — 33:54

Concepts and entities

SpaceX, Tesla, Elon Musk, Anthropic, Ken Griffin, AI bubble, CapEx, OpenAI, Jensen Huang, NVIDIA

Full transcript (original language)

00:02 [music] >> It’s 5:00 a.m. in New York City, 10:00 a.m. in London. Good morning. I’m Bonnie Chiu with your Bloomberg Brief. Let’s get you set up for the day. Equity’s bouncing following [music] strong quarterly results from SpaceX. Elon Musk looking at what could be a huge merger with Tesla. An AI dispute. Citadel’s Ken Griffin warns investors are, quote, almost

00:33 certainly in a bubble in AI. Deutsche Bank’s saying he says he doesn’t see one. And more earnings on deck with Tesla, Meta, IBM, and Texas Instruments. Let’s get a check on markets around the world now after our first group of tech earnings. Winnie Su is back with us for the latest from Asia. Winnie. >> Yeah, good morning, Bonnie. Well, we’re finally seeing Asian stocks rebounding today after 2 days of losses supported by the strong earnings from US tech firms including SpaceX and Supermicro.

01:03 So, you can see that tech heavy gauges in our region leading gains today with South Korea’s Kospi index up by more than 3%. We also saw Indonesian stocks reversing earlier losses of as much as about 2% to rise today after the Central Bank kept rates steady. Now, flip the board, still front and center are the data center stocks in Asia. We have South Korea’s Elise up by about 30% today reversing pretty much all of the losses yesterday on its debut day supported by overall positive sentiment in the tech space. However, the outlier

01:35 though is in the Australian data center NextDC here down by more than 40% after the company cut its earnings outlook amid the supply supply shortage and supply power supply delay amid the public backlash as well. So, we will be watching out the earnings from Meta later today. >> [music] >> Massive volatility and conviction there, Winnie. Those are some stark moves. That was Winnie Sue. Now, let’s get to London for a look at Europe with Justina Lee. Justina. >> Good morning, Vanya. Now, we’re seeing

02:07 slight gains in the stocks Europe 600 today as investors digest a flurry of earnings, but also slightly higher oil today. And of course, still geopolitical headlines. And what’s interesting here is that we’re really seeing a divergence in the bond market today. I mean, the UK bond yield is basically flat even though we did see CPI decline to the highest in 11 months, but it seems like investors have basically priced in a rate hike for the BOE next month. But if you [music] can see here at the same time, a real jump in the 10-year bond yield for

02:39 Italy. And so, there is really a divergence between some of those, you know, peripheral bonds and also, you know, German bonds for instance. And if we flip the board here, we it of course it kind of all comes back to France. We can still see here today even with, you know, less focus on protests in France, we can still see the spread between French and German bond yields is still widening to the highest since about 2010. And we can still see here [music] a lot of political risk being priced in

03:10 even with the French minister saying overnight that he has confidence that the government will be able to pass a budget next year. >> Sure, and more and more companies coming out and warning that there will be an impact on their quarterly earnings. Justina, thank you so much. Justina Lee there in London. In the US, this time yesterday morning it looked like we weren’t getting a nice bounce for the Nasdaq 100. Didn’t really materialize although the S&P did manage to eke out a 0.3% gain. This morning, we look like we’re pointed in a more positive direction for both of these indices. The Russell 2000 was now performer yesterday, but it looks like we might

03:42 see some declines. Now, SpaceX results obviously could [music] color things today. And of course, anticipation for Meta and Tesla. Netflix though didn’t really help overnight either. Netflix very much disappointing investors. Let’s take a look at yields because we did see a little bit of change in yields. Right now, in this particular session, we are unchanged, but we did see the 10-year yield up a couple of basis points in yesterday’s session. The 30-year yield down a couple of basis points. So, at the margin, some repricing potentially >> [music] >> for at least the possibility of a Fed hike in December if not October.

04:16 Although, all bets are really for a hold in October. And then Brent crude also coloring things quite substantially in the last couple of days. We talked $111 a barrel again yesterday. We’re just below 110 today, but that is very elevated and of course we’re fewer than 2 weeks out from the midterm elections. Months to date then, the Nasdaq 100 down 3.3% and the Dow up 3%. That pretty much tells you everything you need to know about this month’s trading. Let’s get to some individual premarket movers now. For that, we’ll go to Olivia Liu Yeu. Olivia.

04:49 >> Good morning, Bonnie. Yes, it’s all about earnings today. We’re kicking off with SpaceX where obviously third quarter earnings came in better than expected largely due to improvement in the AI and satellite businesses. However, the focus was really on the earnings call where Elon Musk threw his weight behind a potential merger between SpaceX and Tesla. That conglomerate could be worth roughly 3.5 trillion dollars at um current market values for each of the companies. Such a conglomerate is mostly important as it would give SpaceX and Elon potential room to finance some of this compute

05:23 power that he’s been trying to push out. He said on the call potentially 10 gigawatts extra compute power would go into effect from next year. That would cost about 500 billion dollars. So, a lot of the reason being thrown around for why a merger is so important is that financing. Moving over to Netflix, they reported their slowest sales jump in 3 years and also forecast a disappointing fourth quarter. That comes amid a disappointing advertising revenue as well as concerns over programming. They’ve recently had a management

05:57 overhaul changing around a couple of senior leadership positions as they try to stem a 25% decline in the stock year to date that’s wiped out about $135 billion in their market cap. [music] Finally, United is also lower in pre-market trading. They have reported a disappointing fourth quarter amid surging fuel costs. They were up about 60% in the quarter. And also they that comes amid even >> [music] >> like normal and resilient demand. >> Olivia, we’ll be keeping an eye on not

06:29 just United trading today but many other airlines as well. Southwest on deck. >> Soon that is Olivia Liu. Also coming up this hour Callum Pickering of Peel Hunt joins [music] on fiscal concerns and also the possibility that investors are in a bubble. Live from Berlin Global Dialogue as well an interview an exclusive interview even with Bernard Mensah of Bank of America. Elon Musk says SpaceX and Tesla have formed special committees to explore a potential merger. He spoke in an earnings call following SpaceX results. >> I do think there’s a lot of merit to

07:02 combining the companies as we are pretty much in the super intelligence singularity and and there’s a lot to be gained from cooperating on developing super intelligence software chip design the terrafab obviously robotics mass to orbit with the with the star mine constellation. >> Connectivity. >> Connectivity. So I think it would be a good idea but but it it’s really up to the special

07:36 committees of both companies. >> Joining us now is Bloomberg equity strategist Ruhel Amen. So we know that Elon Musk thinks this is a good idea. He said he has to step back. It has to be you know an independent process however independent these committees are but is he effectively saying that a combined company could access more capital Ruhel? What what would be the advantage here? >> Yeah, so I think the first thing to say is that a SpaceX Tesla merger has been muted for some time. Rumors have been swirling ever since the SpaceX IPO and I

08:08 think uh uh protagonists of the merger highlight the synergies between the two companies in terms of robotics, chips, compute, etc. Super intelligence, which is the largest division by sales at SpaceX, is obviously a huge focal point for the company. And Tesla also has been investing heavily in AI and robotics. So, there are some natural synergies between the two companies. But, as you kind of allude to, you know, there is also a conflict of interest. Uh it hasn’t been confirmed, and special

08:39 committees have been set up. Elon Musk isn’t involved in the talks. So, there are still hurdles to overcome, particularly around governance, valuation, and whether it’s in the best interest of the shareholders for each company. >> Yeah, I mean, Elon said that effectively it would be Tesla shareholders that would be the ones that he would have to convince or that would have to be convinced. What would Tesla shareholders’ problem be with this merger? >> Yeah, I think that’s the big question. So, the you know, like I said, there are some obvious synergies around compute,

09:12 robotics, AI, etc. But, I think one of the frustrations for Tesla shareholders for a long time has been some of the side projects and [snorts] kind of um slightly more immaterial earning streams uh that has been an overhang for the stock for for many years. Obviously, you can’t bet against Elon Musk because he is a visionary in many ways. But, for Tesla shareholders, they’re going to have to take on the this additional risk around SpaceX. They need to think about the different earning streams, etc. Um and there are also governance issues as well. So, lots

09:46 of things to unpack, and it would be one of the biggest mergers of all time. So, enormous complexity. >> Well, SpaceX definitely surprised the upside with its earnings. We also though did get some details about Anthropic’s S-1, showing plenty of revenue, $16.3 billion, but lots of spending and effectively a net loss. How is this going down in the community, Neil? >> Yeah, so SpaceX, of course, you know, has been reported some very strong numbers overnight.

10:17 I think the most interesting takeaway for me was the fact that on an adjusted EBITDA basis, the the margin expanded quite significantly. So, they are scaling profitably as revenue growth, and I think that was one of the big concerns for investors around the IPO. In terms of Anthropic, yeah, so some of the numbers did get leaked overnight. Um, and you know, the concern has been the revenue revenue growth and whether that’s going to to kind of grow quickly enough to satisfy the valuation. And but we did

10:49 get some additional color, but I don’t think it’s enough to move the needle. >> And then we have plenty of earnings on deck as well today, Ruhail. So, Meta investors are obviously going to be watching out for CapEx and how much they’re monetizing the cloud business. And we also have Tesla earnings as well. What will you be most focused on? >> Yeah, so I think the Tesla earnings obviously have been overshadowed by SpaceX last night. I think the the catalyst has kind of gone for that, but any any interesting comments around CapEx, of course, are

11:20 going to be closely watched. Similarly with Meta, some of the catalysts were announced ahead of the call ahead of the the print. You know, the Muse the Muse Spark announcement was a very big positive for the stock. They’re making some really interesting strides around frontier models as well. Um, and the stock has held up a lot better than the the tech counterparts. So, Meta has rallied going into the print. So, I think a lot of the positive catalysts have been announced already, but again, any commentary

11:50 around CapEx and take up of some of these new products will be potential boon for the stock. >> All right, Ruhail. Thank you so much. Ruhail will be around to take us through it all. No doubt, that is Ruhail Amin in London. Happening right now, Nvidia CEO Jensen Huang delivering the keynote address at the company’s GTC developer conference in Berlin. You can watch that conference. Just type live go into your terminal. >> which enables Sticking with tech, Citadel CEO Ken Griffin says investors are quote almost certainly in an AI bubble right now as companies grapple

12:23 with AI spending and its economic impact. He spoke with Bloomberg’s Danny Burger at the Citadel Securities Conference right here in New York. >> So, what we don’t know is how as as these models become more intelligent, how much are they able to to demand extremely high pricing because they help to actually solve the problems that have vexed humanity for centuries? >> Because people don’t know the answer to that, often the conversation goes to this this bubble one, that maybe this is

12:54 a bubble. Ray Dalio thinks it is. Howard Marks says he’s on bubble watch. The BIS says that it has echoes of the dot-com boom. And I wonder whether it is knowable if this is a bubble. And if you have any particular thoughts about that, if it is a bubble, and if it one it’s one that looks like it’s going to burst at least in certain parts of the different AI layers. >> Well, so so the big picture is there’s there’s almost certainly bubbles within this moment in time. And and any radical transformation of our economy is generally intertwined with a bubble.

13:28 All right? Like remember back in 1999, 2000, and the metrics that we used to value internet companies, and and let’s be clear, some of these internet companies had pretty fanciful business models. But I mean, I just wish I’d kept my Amazon stock from that moment in time. And the internet, which was, you know, which was the great bubble, could it be more of a part of our daily life today than it is? I mean, I I I’ve told the story before, but I was I was updating my Xbox with my

13:59 son a few years ago. He was 13 at the time, and he and he looks at me, and he goes, “Dad, you you lived before the internet existed.” >> [laughter] >> And I said, “I did I did I was born after the dinosaurs disappeared. >> [laughter] >> But yes, there was life before the internet. And now it’s that’s like an incomprehensible thought to a 20-year-old. So, these bubbles if we’re going to use that word, often

14:33 coincide with these giant technological transformations. The railroads, for example. But what’s left in the wake of these bubbles, if we want to use that word, is is often game-changing for the world. And the companies that are on the other side of that bubble are the market leaders for decades to come. >> Citadel founder and CEO Ken Griffin there speaking with Bloomberg’s Dani Burger at the Citadel Securities Conference. Meanwhile, Deutsche Bank CEO Christian Sewing pushing back on those types of comments, telling Bloomberg he doesn’t see a bubble in AI or any other

15:04 part of the financial markets. Now, to all the top stories trending on the terminal this morning. UK inflation hitting an 11-month high in September driven by a surge [music] in motor fuel costs. Consumer prices rose 3 and 1/2% from a year ago. The gain puts the Bank of England on track for its first [music] interest rate hike in more than 3 years. Day one data [music] centers said to be weighing options for its US IPO. The Singapore-based company could potentially delay its US debut as volatility around data centers increases. [music] It could also cut the offering to 2 and 1/2 to 3 billion, roughly half its

15:37 original target. OpenAI says some of its AI agents weakened or turned off alerts designed to flag when its models misbehaved. The incidents happened while agents were performing two internal coding [music] tasks with no external parties listed as impacted. The disclosure follows a series of similar instances in recent months. Coming up, US Secretary of State Marco Rubio says Ukraine wouldn’t exist [music] without US support. More next. This is Bloomberg.

16:09 >> [music] >> If it were not for the assistance of the United States, including under the Trump administration, there would be no Ukraine right now. The Ukraine as a sovereign state would not exist. That doesn’t mean the bravery of the Ukrainian fighters should not be highlighted because they have absolutely very bravely and fought for their country and done extraordinary things with the aid that’s been provided to them standing up to a much larger

16:39 country. But let’s be very clear there. There would be no Ukraine today were it not for the assistance the United States has supplied Ukraine in the billions of dollars. >> Secretary of State Marco Rubio speaking to reporters in India after denying reports the US government had anything to do with the recent slowdown of the Starlink satellite system in Ukraine. Joining us now is Mika Solner of Bloomberg Government. What’s the outlook for Zelensky and Donald Trump? Things have been deteriorating over recent days. Then there were these talks in Oslo,

17:12 Mika. But you get this rhetoric constantly now from the administration pretty negative towards Ukraine. >> Yeah, absolutely. And right now this is a very detrimental time for the Trump administration to be facing any more or any kind of geopolitical escalation on the world stage 2 weeks before a major election for the president where the president’s approval rating is underwater and he continues to struggle with domestic standing. But you know, the the administration has

17:46 really struggled to end this war in Ukraine for a really long time despite ongoing diplomatic talks. I know that we saw the president early on in his tenure say that he was going to put an end very soon. That timeline has been missed especially as the focus of the White House really translates into this war in Iran that they have also really struggled to end and keep a really stable ceasefire over there. So you know, this is a major escalation. We’ve seen really harsh rhetoric come out from President Zelensky. And clearly

18:19 Secretary of State Marco Rubio was on the defense for the administration right now and trying to kind of destabilize the tension there. >> This lawsuit, back if we turn to domestic issues before the midterms, Mika, the national Democrats suing President Trump. One of the issues is that he’s eroding confidence, they say, in the midterms. And they’re citing DHS findings that overturned the fact that nearly 16,000 non-citizens were on the rolls to 185 non-citizens, which is a massive disparity. Will it go anywhere?

18:50 Will it impact the midterms? >> You know, it’s hard to say, but where this is just one of the major lawsuits that Democrats are pursuing right now against the administration. Just going to go back about a week or so ago where they also sued, you know, Trump over political what they say are political ads on air that he’s been saying. But the voting issue was really sensitive for the administration given that the president has failed to push the Senate to get a vote on the floor of the Save America Act, one of his signature legislative pushes,

19:24 because they they don’t have the votes in the Senate. But this is something that the president has been really adamant on in terms of cleaning up the voter rolls. I know that the White House has been staffing up in terms of trying to ensure that you know, there’s corrective efforts or however you want to refer to it when it comes to making sure these elections are secure. And there’s no doubt that the president has so doubt into this midterm election. And we’re going to see, you know, potential aftermath of that with the White House also staffing up to prepare for potential challenges

19:54 if there are losses that they disagree with. >> And then the Commerce Secretary, Howard Lutnick, is really throwing a spanner into the US-Mexico trade talks. I mean, we saw this last week. They were at the 11th hour, almost done, almost underlined and put away. And now suddenly there are problems with the steel and aluminum tariffs. What’s the issue, Mika? >> administration. I think that you know, they’ve really struggled to kind of lock in these deals. Um you know, there’s tension there as

20:28 you mentioned with uh Howard Lutnick, but um I know that this is also in line with you know, Mexico’s exports being almost 80% going to the US. So, I think we’re going to see this and we’re going to see these meetings continue. >> Mika, thank you so much. That’s Mika Zohner of Bloomberg Government. Time now for your front-page news. The Financial Times saying Benjamin Netanyahu had made plans to resume large-scale strikes against Iran earlier this month. Next up, The Wall Street Journal

21:00 reporting it was Elon Musk who ordered the slowdown of the military-grade version of Starlink relied upon by Ukraine. And finally, The Washington Post reporting Zelenskyy in Ukraine said US intelligence sharing has been restored. Coming up, we’re going to speak with Callum Pickering of Peel Hunt. This is Bloomberg. >> [music] >> It’s 5:30 a.m. in New York City, 10:30 a.m. in London. Good morning, I’m Bonnie

21:30 Quinn with your Bloomberg Brief. Let’s get you set up for [music] the day. Equities look to be bouncing back today following strong quarterly results from SpaceX. [music] Elon Musk looking at what could be a three-and-a-half trillion-dollar merger with Tesla. Citadel’s Ken Griffin warns investors are almost certainly in a bubble. Deutsche Bank saving along with Larry Fink, they say they don’t see one. And more earnings with Tesla, Meta, IBM, and Texas Instruments all on deck. All right, so futures look to be bouncing today. We’re gaining even more

22:01 now on the Nasdaq 100. This after we didn’t actually see a gain for the Nasdaq 100 yesterday in spite of how things looked early in the morning. We had a sixth loss in seven sessions even, but then we had SpaceX’s blowout Q3 results. And yesterday we did see the S&P eking out a 0.3% gain. Lots of rotation going on as well. The Dow was literally up 3% this month, whereas you have the Nasdaq 100 down 3.3% but we’ll see if that changes. We’re waiting on Tesla results today, also Meta, also the likes of Lamb Research which obviously is involved in

22:34 semiconductor processing equipment. And then we got more details from the Anthropic S-1. So all of that will percolate through the market today. Let’s take a look at yields. We did see the two-year edging up yesterday. No real movement in today’s session but we were up almost four basis points really and we’re still around where we were 478 46 and the 30-year was down about three basis points and that is the case as well today. It is flat at 542 [music] 54 lower than where we were yesterday. If we take a look at Brent crude, that is

23:06 very much part of this market mix at the moment because we topped 111 yesterday. We’re just below 110 now but up a percentage point. Continued conflicting results from the various leaders. All right, for some stocks to watch, let’s get to Olivia Liu here. >> Hey Vanna, yes, as you said, we’re kicking off with SpaceX. They obviously had a strong third quarter result that’s sending the stock up by roughly 9% in pre-market trading. However, the focus really squarely on the potential merger

23:40 between SpaceX and Tesla that Elon really threw his weight behind in the earnings call. That merger potentially worth up to three and a half trillion dollars and it’s particularly important as Musk seeks financing to build out this AI compute program. In the call he said that he was looking to bring on up to 10 gigawatts of extra compute power next year. That would cost him 500 billion dollars. >> [music] >> So this merger potentially really important for that financing. Moving over to Netflix, they reported their slowest third quarter sales in roughly

24:14 three years and also forecast a worse than expected fourth quarter. Netflix’s stock is down roughly 25% year-to-date wiping out 135 billion dollars in market cap amid growing concerns over the future of the company. They’ve tried to make management changes and announced their largest layoffs since 2022, all in an effort to try and address some of these concerns. Finally, we had results overnight from Supermicro. Those preliminary quarterly sales coming in ahead of estimates and really helping to provide a boost to the AI trade, calming

24:47 some investor nerves. We saw Asian stocks higher off the back of this and we’ve also got a basket of European AI winners higher by about 1%. >> All right, Olivia. Thank you so much. That is Olivia Liu. Callum Hunt Pickering of PL Hunt weighing in on the risks ahead for the economy writing quote, “Markets are increasingly questioning the sustainability of debt-financed growth. With the Fed leaning hawkish, fiscal discipline absent, and the economy heavily reliant on AI investment and asset wealth, the risks to the outlook are becoming harder to ignore.” I’m

25:18 pleased to say Callum joins us now. He’s chief economist at PL Hunt. Callum, the line that stood out to me, and it really is quite a chilling line in your note, is this one that the Fed really is going to be taking notice of. The US economy is now more leveraged to its own asset markets than at any point in the modern cycle. I mean, that feels like we’re really setting ourselves up for a massive amount of wealth destruction at some point if something goes wrong. Is that what you’re saying there?

25:49 >> So, what I’m Of course, we will get some wealth destruction at some point. Almost take that as a given. There’s almost no way we can avoid this kind of boom-bust cycle dynamic. What slightly concerns me at the moment is two things. First, this juxtaposition between resilient global economic growth, which is generating the income and the savings for investment, combined with this elevated benchmark interest rate environment. And so, the second point that comes from that, you know, you listen to economists in the US, they talk about this K-shaped

26:21 economy. We see this also over here in Europe, which is to say that because of this crowding out effect from overspending by governments and the and the excessive debt, high benchmark interest rates, which are the hurdle for investment activities, mean that anything that’s above that invest that interest rate threshold is okay. AI’s the obvious one. Anything that’s below it is not okay. So, I’m more concerned about the distribution at which capital is being allocated because we’re generating the capital for investment, but these interest rates are high. It’s all getting concentrated

26:54 above the interest rate threshold, which is basically AI where markets are turning exuberant. Everything else that actually needs some investment is not getting caught up in this in this surplus of savings. >> Is this something that the Fed will actually have to take a real interest in? I mean, obviously they’re curious about impacts of inflation and what the wealth effect is doing and there are plenty of aspects of this argument that they’re looking at, but will they have to look more closely, Callum? I mean, is it is it almost like, you know, when the balance sheet got expanded, for example?

27:24 >> Yeah, it’s it’s it’s a good question. I mean, the challenge is central banks as a general rule are not very good at just cooling down asset price inflation. They either decide, “Let’s just let this thing run and then we’ll clear it up after.” Kind of almost Greenspan-esque. Or, “Actually, let’s try to prick this bubble before before it starts.” Then you get the the disaster. I think from the Fed’s point of view, if it uses these good quarterly earning seasons, which we now repeatedly have, to just nudge rates up a little bit at the short end and sound a bit hawkish about long-term inflation risks,

27:58 that I think can contain long-term yields, even bring them down into next year once this energy shock has passed. And as interest rates decline at the long end, these lower benchmark interest rates should open up investment opportunities around the economy, and then we’ll get a better distribution of capital allocation. >> Yeah. I mean, you do say that there are a couple of different ways that the US can respond. One would be a larger than expected tightening cycle to re-anchor inflation expectations. Do you see that happening, though, Callum? >> I think it’s unlikely. The problem that you have is from

28:32 from the central bank’s point of view, both the Fed and other central banks as Bank of England ECB, they’ve recognized that the fundamental problem facing the world has changed. So, from 2010 to 19, we had a lack of demand. From 2021 onwards, we’ve had a lack of supply. And so, short-term rates have gone up from their lows, balance sheets have shrunk. Governments by and large are still pursuing policies which work in a world of shortfalls in demand, that post-Lehman experience, not worlds of shortfall in the supply. So, they’re generating this additional demand which is showing up as inflation. Central

29:04 banks, of course, can lean against this, but they can’t solve the fundamental problem of either A, fiscal excesses, or this shortfall in supply that we have. And so, they don’t work in against each other in a way that balances things out. It’s just offsetting one distortion with another, and then you end up with this uneasy situation. >> You also mentioned that you would like to see some kind of credible commitment from the Treasury and the president to a lower structural deficit. It doesn’t feel like that’s going to happen anytime soon, Callum. So, are we really setting ourselves up for some kind of a problem

29:38 in the next couple of years, or or will Scott Basson come to the rescue somehow? >> Well, AI may come to the rescue. I think if you get sustained productivity growth from AI, this bet on government debt in the US makes sense. I would also just pose a question. What alternative does America have? It’s racing to innovate AI with with China. China has these huge export surpluses coming from its competitive labor force, which it can then use to finance supply investment around the world. So, we’re

30:10 tolerating Chinese export excesses in order for China to then find the supply to drive its innovation. America is issuing the world with lots of debt and spending that money on AI innovation. We’re tolerating a different excess with America, but America is so well endowed from a commodities and land perspective, it’s sort of working. And so, I sit back and say, in the end, US and China are racing for AI. The winner will be the one that gets the world to tolerate its excesses for the longest. Either the trade surpluses from China, the debt surpluses from from the US. And I think if you think about US policy, driving

30:44 down rates, trying to force the Europeans to curtail Chinese exports. I think the US is wondering how sustainable this model actually is and I think markets are puzzling that, too. >> Callum, we’re out of time, but just on inflation, have we seen the worst of the most recent bout of it? Are we going to continue on a downward trajectory and is the Fed going to make sure of that, do you think? >> Um it might get worse a little bit over the next couple of months. My bet is next year inflation comes down decisively. I think the world is actually adjusting quite well to this uh this Iran shock. Things would have been better, of course, without it, but I

31:17 don’t see the mechanics for the kind of inflation surprises that we got in ’22. And so the Fed may need to do a bit, but I think inflation drifts lower next year. >> All right. Well, we’ll end on a good note. Callum, thank you so much. That’s Callum Pickering of Peel Hunt. Now, to all the top stories trending on the terminal this morning, [music] Elon Musk openly endorsing combining SpaceX and Tesla. During SpaceX’s earnings call, he said boards of both companies had formed special committees to look at a merger. Musk made the comments after SpaceX results beat expectations. It posted $4.4 billion in net income for the [music] quarter ended

31:49 in September. BlackRock CEO Larry Fink warning about a potential slowdown in AI spurring inflation. He spoke to Bloomberg from the Berlin Global Dialogue. >> If we don’t build out these data sets, it is actually more inflationary because the cost to compute is so high right now. And the faster we can build up more data set is the more compute we have, the faster we can bring down the cost.

32:20 >> And Democrats have sued President Donald Trump and the Justice Department over what they say is a coordinated effort to erode confidence in the midterms. [music] The suit seeks a court order finding the administration’s demands related to the purported lists of non-citizen voters violate [music] the separation of powers. The suit also wants a judge to bar the administration from continuing [music] that effort. Coming up, an exclusive conversation with Bernard Mensah, president of Bank of America International. He joins from the Berlin Global Dialogue.

32:50 Also, Nvidia CEO Jensen Huang’s keynote address is still ongoing at the company’s GTC developer conference, which is taking place this year in Berlin, as you can see. He is on the stage, has been for about 40 minutes or so. You can watch that by typing live go into your terminal. >> Of course, we have the architecture that we developed, but we also build it now in a full stack complete AI factory. There are many companies in the world who want to design their own chips,

33:22 but most of the companies in the world just wants to deploy the AI infrastructure. >> [music] >> This is Bloomberg Brief. I’m Bonnie Glick in New York. Let’s head over to Germany now. Francine Lacqua is at the Berlin Global Dialogue with an exclusive interview for us. Francine. >> Bonnie, thank you so much. I couldn’t be more happy to speak to Bernie Mensah, of course, of Bank of America, where he’s International President. Bernie, thank you for being with us. When you look at markets in general, I mean, there’s a

33:54 big debate on whether we’re in an AI bubble, whether we’re not. You have global yields going through the roof. Like, what do you actually worry about when it comes to to what the market is signaling? >> I think from a market perspective, it’s good to see you, Francine. Thanks for having me. Um I think we’re in a period of price discovery. We’ve talked about this before, and I think that’s a good thing. So, I think there are various pockets in the market that are saying, “Are we stretched? Are we not? Where do you want to buy? Where do you want to sell? Where do you want to invest your marginal dollar?” And we’ve had that over the last 2 or 3 years. You know, we talked about commercial real estate in the US. We’ve talked about different bits. So, I’m not being complacent about the AI bubble. Um so, I think that’s

34:27 what’s happening. Um I do think, as an old bond trader, the one of the things that does worry me a little bit is the sovereign yields of the most developed countries, and we need to keep an eye on that just because it’s so big. >> But is it something that it’s telling us could could that it impact equities? I mean if you look at bond yields, we’re in trouble. There’s trouble ahead. >> At some level, yes. I think those that sort of say history is forgotten and doesn’t repeat itself. Past is prologue. I I think that it it rhymes. I think it might impact in in a slightly different way. It’s a different dynamic. You know, you have some some sentiment sort of saying, well, where

35:01 would I park my money with with sovereigns who are really way overextended or in a broad equity market based on corporates whose balance sheet is generally in a good place. In consumer balance sheet is generally in a good place. But at some level, the yield differentials come in. >> What are clients asking of you when it comes to funding? I mean we see a lot of money going into the you know, data centers. Is it something that you’re you’re invested in? >> Yeah, so clients are saying, what will the markets be like? So they have at the back of their minds a little bit the yields that they’re seeing. Will the market stay open and be continuous? Otherwise, a lot of the corporate clients are really thinking through

35:34 supply chains, resiliency. So a lot of it is can banks like Bank of America be there to support them? Do we have the network in all the different countries that they want to play in? Because remember friends, in the old you know, the pre first version of globalization, everything was super efficient, right? You sort of put all your factories in one place, you supply the rest of the world, your consumers were somewhere else. In the new world, I think there is a lot of globalization. We just have to be thoughtful. If you think about North America, am I in Canada or Mexico or the US? What does you know, the US agreements with those two countries look

36:05 like going forward? So that’s driving a lot of dialogue. >> So what are we talking about? Like fragmentation or re you know, because we keep on going from like word to word, but what do you think the next phase is? >> I think you know, often we’re trying to pigeon it a whole it into a word. You know, we had globalization, so we’re all thinking what’s the next you know, version of that. I think simply people the next generation of management are evolving. So there’s a whole series of management that came in and said, right, I’m putting my factories perhaps in China, perhaps in Mexico to supply North America. Now there’s management that’s coming in and saying, well, I

36:36 really need to think through what is Canada, Mexico, what are they thinking and how should I manage that? But within that, I think there’s terrific opportunity. By the way, there’s a classic example here with Brexit where for financial services, we based ourselves in London to supply financial services to Europe. It was never in any of our risk analytics that we would have to cater for what if we couldn’t be in London to supply Europe. But when that happened, overnight, we we had to deal with that. And and so we’ve had to find a way in our supply chain to supply financial services to continental or to

37:09 you know, to the EU outside of London. So certainly these things happen. >> What what what what kind of the conversations are you having about Europe right now given the protests, you know, the riots in France, but also many question marks about reforms in Germany and other countries that will go to elections next year. >> Yeah, I think from a business perspective, the sense I get when I travel around and you know, I know you were in India the other week, I was in Bangkok, I was in the Middle East the week before. I think people outside of Europe are curious about the French elections and how that plays out and what what the policy

37:40 shifts might mean. So I think there’s an element of that. There there is is a curiosity about the elections that took place in Germany. I haven’t been asked too many questions about that. I think the core questions from a business community that I get asked anyway are what are what are what are what’s the European single market doing? Are they making progress towards that? What are the engine energy costs in Europe? Have they are they making progress towards finding new and resilient source of energy because at least the manufacturing bases in Germany where we are have always had a high energy content. And the next technology

38:11 revolution is a high energy content technology revolution. >> So are you are you still expecting capital to be to be deployed for example in defense across Europe? If you know, if you look at some of the question marks we have, does it change where capital goes in the shorter term or does it just you know, move to where it has to? >> Oh, I mean there definitely certain sectors where capital is aggressively trying to get into place and to and to catalyze things. You mentioned defense and that’s a a great example. And actually not just let’s say private capital in Europe, there they’ve you know, they’ve been

38:43 harnessing and and accumulating pools of you know, riskier capital assets of venture capital type, growth capital type, which typically in the US where it’s more developed, the markets have provided that. In Europe where it’s been less so, um some of that has been pulled in by governments. And the challenge for Europe, which has got a huge amount of savings and excess savings, is to deploy those savings more efficiently. You know, back to drag the etc. >> I mean, do you do you see public-private partnerships? And again, what does it mean for that for What does that mean for Bank of America? >> Yeah, so absolutely and that and that that’s happening um around Europe. And

39:15 we have absolutely been, you know, central to that um with our ideas, with our initiatives. And and the great thing about our platform is we can, you know, crowd in capital markets. We can crowd in our most valuable resource, which is our intellectual capital, and then our global network to bring solutions. So, often you’re bringing capital from different parts of the world. You’re And some of that is sovereign capital, some of that is sovereign wealth funds, or some of those partnering with with government. And then you know, we we advise governments to have the cheapest form of financing so they can get out of the way and not crowd the the private sector. So, there’s a lot of

39:48 really exciting things around that. >> What are you most excited about in terms of of region? I mean, there’s a lot going on in Asia, right? You just come back from Bangkok. Is there something I mean, Japan seems also like a great opportunity. >> And and that’s that’s what keeps me optimistic. I think there’s so much going on. When you go through Bangkok or Singapore, Malaysia, where I was maybe 2 3 months ago, that whole area we just got good demographics around it. High savings rates, real embrace of technologies driving through and and you talk to the policy makers of Singapore, really being on the cutting edge of, you know, what the the market should look

40:19 like. But then 3 weeks ago in in Canada, when Mark Carney laid out an incredible vision for really catalyzing Canada, driving its growth rate up, removing the barriers within Canada, setting up uh government officials to be one-stop shops, approving large large transactions within certain time frames. And Canada could be an energy supplier to Europe. And then as we’ve been here with the last 2 days, a real sense of urgency in Germany and around Europe to see, despite all of the noise around it, if if we can move things forward. I was

40:50 in um Dubai and Abu Dhabi seeing our colleagues a couple of weeks ago and and even there with all of the challenges that have recently been faced, a real dynamism about what does the next version of the region look like, what does the infrastructure look like, how should some of the largest national oil companies there position themselves in in the next phase. >> I mean, next week is a is a big day, of course, uh for the UK with budget day on 28th. >> Yeah. >> But, I mean, there there’s talk about bank levies or surcharges. Like, what’s your take on the UK right now? >> I think the UK’s picture probably hasn’t

41:20 changed hugely over the last, um, you know, year or two in terms of the constraints. I.e., the bond markets are a little bit at max in terms of the prices which they want to lend to the government. Um, taxes are a little bit at max in terms of it feels like in terms of either corporate or or, um, uh or or personal taxes in terms of how much people want to pay or can pay or the government can extract. Feels as though there might be a diminishing return. And the government’s willingness to, um, um, look at its expenditure. So, you have this trifecta. And, um, you know,

41:51 we’re in finance and business, we’re not in politics. And I think the job of the politicians is to make those choices. Um, and I would say, make those choices over-indexed on growth. Others might say, make those choices over-indexed on on other things. And I think those are choices Francis facing acutely. Germany slightly less so cuz it’s got a little bit more fiscal capacity. So, it’ll be interesting to see where this chan- this chancellor, you know, lays the bets. I I I think you can make a very strong case for four or five policy ideas which I won’t touch through here, which can really

42:22 catalyze growth, which from an amateur’s point of view should work through the political, um, uh sort of, you know, >> operators. >> Oh, yes, but again, it’s way beyond my pay grade. >> So interesting. Thank you so much Bernie for joining us. That was Bernie Mensah, Bank of America. And then, of course, Bernie is joining me for a panel a little bit later on, Bonnie, that you can catch on live go. >> Can’t wait for that, Francine. Fantastic chat. And of course, lots of great conversations coming out of Berlin at the global dialogue with Christine Lagarde.

43:01 Now look at what’s ahead today. Philip Morris, AT&T earnings before the bell. Then we have Bank of England Governor Andrew Bailey speaking at 9:00 a.m. Eastern time. Then the highlight, tech [music] earnings. Tesla, Meta, IBM, Texas Instruments all after the close. And we’re going into the session a little bit like we were yesterday with Nasdaq futures pointed higher. Yesterday it didn’t quite work out. French 10-year yield almost at [music] 5%.