US Sends Aircraft Carrier, 10,000 Troops as Iran Tensions Escalate

FRANCINE: EUROPEAN BONDS UNDER PRESSURE UNDER CONCERN OVER FRANCE'S FISCAL POSITION. THE U.S. REPORTEDLY RAMPS UP ITS MILITARY PRESENCE IN THE MIDDLE EAST, DEPLOYING AN EXTRA 10,000 TROOPS AFTER PRESIDENT FROM SAID BOMBING COULD RESUME AFTER THE MIDTERMS. PLUS, BLOOMBERG LEARNS ANTHROPIC IS LOOKING TO GO PUBLIC AS SOON AS THE MIDDLE OF NOVEMBER. WE WILL HAVE MORE ON THE BLOOMBERG SCOOP. THERE IS A LOT GOING ON IN MARKETS AND BONDS. STOCKS ARE CLIMBING, A LITTLE BIT CALMER BEFORE PAYROLL FIGURES. THERE IS ONE THING IN TOWN THAT IS LOOKING AT WHAT WE HAVE SEEN, THE TERRIFIC MOVEMENT NOT ONLY IN TREASURIES BUT ALSO THE 10 YEAR YIELD, UP 4.917. I WOULD SAY THIS IS A WORRY ABOUT THE BUDGET IN THE MORE MEDIUM-TERM, BUT THERE ARE ALSO WORRIES ABOUT THE FISCAL POSITION FOR THE LEFT AND WHITE -- RIGHT. LET'S TAKE A LOOK AT THE MARKETS MAP. THIS IS A STORY THAT IS CHASING WHAT WE ARE SEEING IN OTHER PARTS OF THE WORLD. IT IS CLEAR THAT FRANCE'S TROUBLES ARE DEEPENING AS INVESTORS HEAD FOR THE EXITS AND THE BOND MARKET, FOR THE MOMENT, WE ARE SEEING THE CAC 40 HOLDING STRONG WITH GREEN ON THE SCREEN. NIKE FALLING AFTER REPORTING WEAKER THAN EXPECTED SALES. YOU CAN SEE PREMARKET DOWN 8.6%. FOR THE CONVERSATIONS THAT MATTER IN THE INSIGHTS YOU NEED, LET'S GET STARTED. -- AND THE INSIGHTS YOU NEED, LET'S GET STARTED. [] MUSIC PLAYING] >> NEWSMAKERS AND MARKET MOVERS. THIS IS "THE PULSE WITH FRANCINE LACQUA." FRANCINE: GOOD MORNING AND WELCOME TO "THE PULSE." I'M FRANCINE LACQUA. SOME CALM RETURNED TO GLOBAL BONDS AFTER A WEEK WHEN MARKETS WERE LASHED BY SHARP SWINGS WITH YIELDS AND U.S. PAYROLL REPORTS STILL TO COME. THE TREASURIES ARE SOMETHING FED POLICY MAKERS HAVE BEEN WEIGHING IN ON HIM. >> THIS IS THE BIGGEST GAP BETWEEN THE ACTUAL TWO YEAR YIELD AND THE IMPLIED TWO YEAR YIELD FROM THE SEP. >> WE HAVE SEEN INCREASES OVER TIME. WE HAVE SEEN MORE INCREASES RECENTLY. I THINK IT IS A COMBINATION OF FACTORS, SO I DO NOT ATTRIBUTE THEM TO ANYONE. >> YIELDS ACROSS THE TERM STRUCTURE HAVE INCREASED FURTHER, A SIGN THAT INVESTORS ARE REASSESSING THE EVOLVING MACROECONOMIC LANDSCAPE. >> I THINK WE COULD RUN A MORE EFFECTIVE BANK AND MOVE MORE CREDIT IF YOU HAD A MORE TRADITIONAL SLOW DEAL CURVE. IT IS ALL RELATIVE RIGHT NOW. >> MARKETS ARE PRETTY GOOD. WHEN THEY WANT TO SEND A SIGNAL, THEY WILL, REGARDLESS OF WHAT THE FED IS TELLING THEM. FRANCINE: IN EUROPE, BONDS REMAIN UNDER PRESSURE. THE GLOBAL DEBT SELLOFF HAS HIT FRANCE HARD AS CONCERNS GROW OVER ITS FISCAL AND POLITICAL SITUATION. WITH US NOW, KIM CRAWFORD AT J.P. MORGAN ASSET MANAGEMENT, AND BLOOMBERG'S EXECUTIVE EDITOR FOR MARKETS, PAUL DOBSON. ARE INVESTORS LOOKING AT FRANCE AND SAYING IT WILL MAYBE MUDDLE THROUGH, BUT ACTUALLY THEY JUST WANT TO GET OUT? >> THE MOVES HAVE BEEN EYE WATERING. IT STARTED WITH THE U.S. AND 10 YEAR YIELDS UP BY 100 BASIS POINTS YEAR TO DATE. ABOUT HALF OF THAT CAME IN SEPTEMBER ALONE. AS OF YESTERDAY, FRENCH AND ITALIAN YIELDS HAVE MOVED EVEN MORE. I THINK IT IS IMPORTANT TO SEPARATE THIS MOVE INTO THREE CHAPTERS. THE FIRST CHAPTER WAS FUNDAMENTAL. THERE WAS HIGH COMPETITION FOR CAPITAL, AND AN ENERGY SHOCK. CHAPTER TWO WAS LAST WEEK, WHERE IN MY OPINION THINGS GOT MORE DISORDERLY AND TECHNICALLY DRIVEN. WE BROKE KEY THRESHOLDS. AND THIS WEEK IS CHAPTER THREE, WHEN CRACKED STARTED TO EMERGE. YOU FIRST SAW IT IN THINGS LIKE TRIPLE C AND SUBORDINATING MOODS OF DEBT. YESTERDAY IT SHIFTED INTO EUROPE AND YOU HAD A LOT OF DE-RISKING COMING INTO THE MARKET, A PACE AT WHICH THE MARKET STRUGGLED TO ABSORB. FRANCINE: THE MILLION-DOLLAR QUESTION IS, HOW MUCH MORE IS THERE TO GO? KIM: THE POSITIONING HAS TO FINISH. IT IS AN OPEN QUESTION WHETHER IT HAS. WE HAD A LOT OF QUESTIONS YESTERDAY ABOUT WHETHER THE ECB'S PROTECTION TRANSMISSION INSTRUMENT COULD BE ACTIVATED, AND I THINK THAT IS VALID GIVEN YOU ARE SEEING THE CONTAGION SHIFTS JUST FROM FRANCE TO THE REST OF EUROPE. I THINK THE PROBLEM IS THE MOVE WAS FUNDAMENTALLY DRIVEN, LIKE YOU MENTIONED. IT IS WORRIES ABOUT THE LACK OF PROGRESS ON FISCAL CONSOLIDATION IN FRANCE, A STILL FRAGMENTED PARLIAMENTS THAT CANNOT COLLECTIVELY MAKE THE TOUGH DECISIONS THAT NEED TO BE MADE. SO YOU GET INTO THIS VICIOUS CYCLE OF HIGHER BORROWING COSTS BEGETS MORE DEBT SUSTAINABILITY WORRIES. FRANCINE: HOW DO YOU SEE THIS? BLOOMBERG HAS HAD GREAT COVERAGE ON THIS. BOND YIELDS HAVE BEEN CLIMBING ALMOST DAILY. THERE HAS BEEN A DEBATE OVER THE REASONS WHY. >> THERE HAS BEEN A DEBATE OVER THE REASONS WHY. I THINK KIM FRAMED IT VERY NICELY IN THAT THREE STAGE EVOLUTION. THERE IS ANY NUMBER OF REASONS FROM JUST THE AMOUNT OF SUPPLY COMING INTO THE MARKETS AND THE FACT THAT WE ARE IN A HIGHER GROWTH, HIGHER INTEREST RATE ENVIRONMENT. BUT THIS LATEST STAGE WE ARE IN WHERE THE WEAKER THINGS ARE GETTING PUNISHED MORE RELATIVE TO WE ARE ACTUALLY A BIT OF A HAVEN BID THAT WE SAW IN JAPANESE GOVERNMENT BONDS OVER THE LAST 24 HOURS IS NEW AND A LITTLE MORE WORRYING AS A RESULT. SOME OF THE INVESTORS WE HAVE SPOKEN TO IN THE ASIA-PACIFIC REGION TODAY HAVE BEEN TALKING ABOUT THEIR VIEWS ON JAPANESE GOVERNMENT BONDS. 20 TOLD US THEY LIQUIDATED PEOPLE PRESENT FRENCH GOVERNMENT BONDS AND MOVE THEM INTO JGB'S, MOVE THEM INTO U.S. TREASURIES. DE-RISKING, AS WE WERE HEARING THERE, IN MOTION. THE JAPANESE INVESTORS WERE ALSO TELLING US THEY ARE NOT GOING TO BE ADDING FRENCH SECURITIES ANYTIME SOON WITH THE RISK IS STILL OUT THERE. SOME THAT WE SPOKE TO SAID 150 BASIS POINTS IS VERY WIDESPREAD ON FRENCH BONDS OVER GERMANY. MAYBE THAT IS WHEN THEY START TO LOOK A LITTLE MORE APPEALING AGAIN, HOW MUCH MORE RISK CAN YOU FACTOR IN FOR BOND COUNTRY RELATIVE TO THE WHOLE OF EUROPE? A MIXTURE OF VIEWS, BUT WHAT THE MONEY WAS ACTUALLY SHOWING US WAS THAT FLOW INTO SAFER LOOKING SECURITIES OR BRINGING A LITTLE BIT OF MONEY HOME AND GETTING OUT OF FRANCE, PROBABLY THE SALIENT POINT THERE. >> I GUESS THE MILLION-DOLLAR QUESTION IS IF YOU REACH CERTAIN THRESHOLDS, IS THERE A SELF STABILIZING EFFECT? WE HAVE NOT REALLY SEEN THAT IN TREASURIES. KIM: AND HE REALLY SAW THAT IN GERMAN CORE GOVERNMENT BONDS. WE HAD A BIG TIGHTENING OF FINANCIAL CONDITIONS FROM THE SOVEREIGN SPREADS WIDENING. IT ALSO FILTERED A BIT LESS BUT STILL WANT TO CREDIT SPREADS AND EUROPEAN EQUITIES, AND THE MARKET HAD TO TAKE OUT SOME OF THE HIKES PRICED IN FOR THE ECB. ON MONDAY, LAGARDE WAS TALKING ABOUT HAVE HIGHER LONG-TERM YIELDS WOULD WEIGH ON GROWTH AND THEN PULLED DOWN AND PASS THROUGH INTO INFLATION, AND THAT WAS BEFORE YESTERDAY'S NEWS AS WELL. THERE IS A BIT OF THAT GOING ON NOW, WHICH I THINK IS HELPING STABILIZE THINGS A LITTLE BIT, BUT IF I THINK ABOUT WHAT CAN REALLY TURN THE FRENCH DOMESTIC SESSION AROUND, I THINK COULD TELL DROPPING OUT OF THE CONTENTION EARLIER COULD HELP. I THINK GIVEN WHERE SPREADS ARE WHY DID -- WHY TO TODAY, THE BUDGET -- WIDENED TO TODAY, THE BUDGET COULD PROVIDE RELIEF. FRANCINE: IF THE GENIE IS OUT OF THE BOTTLE, IS IT IN FACT ELSEWHERE? I THINK THE U.K. WAS THE FIRST ONE TO REACH 6% ON THE 30 YEAR. KIM: YOU ARE SEEING THE MOST INDEBTED COUNTRIES MOVE HIGHER IN YIELDS. IT IS SPILLING OVER TO THE GLOBAL ECONOMY BECAUSE MARKETS ARE INTERCONNECTED. BUT I THINK AT THESE LEVELS, YOU ARE STARTING TO SEE THE CRACK'S COME THROUGH AS A RESULT OF HIGHER YIELDS. I DO SEE VALUE. WE ARE GETTING MORE CONSTRUCTIVE ON DURATION. BONDS TYPICALLY SELL OFF UNTIL SOMETHING BREAKS, AND SOMETHING HAS BROKEN. HISTORICALLY, WHEN YOU LOOK AT THESE YIELDS, WHEN THEY MOVE THIS SHARPLY, THAT MUCH HIGHER, IN A FEW MONTHS' TIME, YOU DO SEE ON AVERAGE GROWTH STOCKS ROLLOVER, WHICH HELPS STABILIZE YIELDS. AND ECONOMIC SURPRISES START TO NORMALIZE A BIT. AND IF YOU ARE WORRIED ABOUT YIELDS STILL RISING MORE FROM HERE, THERE IS A VERY HEALTHY AND CONCUSSION. TODAY GIVEN THE MOVES, YOU CAN BUILD A GLOBAL FIXED INCOME PORTFOLIO THAT YIELDS YOU ANYWHERE FROM 4% TO 7%, A HEALTHY CUSHION FOR HOW MUCH YIELDS CAN MOVE BEFORE YOUR CAPITAL DEPRECIATION AND BONDS WIPED OUT THE INCOME YOU ARE GETTING. FRANCINE: ON THE BACK OF THAT, LOOKING AT ENTRENCHED INFLATION, DEFENSE SPENDING, IT ALSO GOES BACK TO THE RACE TO BUILD OUT AI INFRASTRUCTURE. THERE HAS BEEN A BORROWING BINGE ADDING TO THE FLOODING OF DATA HITTING THE MARKETS. IS THERE GOING TO BE A RECALIBRATION ON SOME OF THESE THINGS? PAUL: I DO NOT THINK THERE WILL BE FOR A LOT OF IT. THE PEOPLE COMING FROM THE MARKET -- COMING TO THE MARKET ARE COMING FROM THE AI STACK. THEY ARE NOT VERY PRICE SENSITIVE. THEY NEED TO BE AND WHAT THEY SEE AS AN EXISTENTIAL RACE TO BUILD OUT CAPACITIES TO KEEP UP. IF YOU ARE TOO SLOW AND FALL BEHIND, NO MATTER THE COSTS, THAT COULD BE GAME OVER. WE ARE STILL SEEING A LOT OF FUNDRAISING COMING FROM THAT SPACE, EVEN WITH THE HIGHER YIELDS, EVEN WITH HAVING TO STRETCH FURTHER IN ORDER TO ACHIEVE IT. THE SUPPLY SIDE DOES NOT LOOK LIKE IT IS GOING TO ROLL THAT MUCH. THE GOVERNMENT IS STILL SPENDING PLENTY. YES, THERE ARE HINTS ABOUT WHAT THEY COULD DO TO MITIGATE THE RISKS. THE BUYBACKS IN THE U.S., IN SOUTH KOREA WE HAVE SEEN SOMETHING SIMILAR, OR FISCAL CONSOLIDATION, WHICH WE ARE STARTING TO HEAR FROM PARTS OF EUROPE. THERE IS STILL SUPPLY. WHAT WE WANT TO SEE IS IF OIL WILL FINALLY COME DOWN LOWER, BECAUSE THAT HAS DEFINITELY BEEN ONE OF THE FACTORS, PSYCHOLOGICALLY MORE MAY BE THAN IN TERMS OF ITS INFLATIONARY IMPACT, ACTUALLY, HOLDING UP THE BOND YIELDS. IF WE DID SEE OIL DROP OFF 10 TO $20 WITH SAMSUNG IN THE MIDDLE EAST, THAT TAKES AWAY SOME OF THE TENSION. THAT WOULD IMMEDIATELY EASE SOME OF THE CONCERNS WE GOT TO SEE BLOW UP IN THE FIXED INCOME SPACE OVER THE PAST WEEK. FRANCINE: CHINA FRANCE IS THE EYE OF THE STORM, BUT THIS IS A GROWING PROBLEM FOR POLICYMAKERS AND CENTRAL BANKS. AS WE GO INTO THE WEEKEND, WHAT KIND OF CONVERSATIONS WILL AUTHORITIES BE HAVING? PAUL: IT WILL ALMOST BE OUR BEDTIME BY THE TIME THAT COMES OUT, BUT THAT WILL BE INTERESTING TO WATCH. THE MARKET IS LOOKING FOR A LOWER NUMBER, A DECELERATION IN THE FIGURES THERE, AND THE MARKET IS NOT PRICING IN MUCH POSSIBILITY OF THE FED MOVING TO HIKE INTEREST RATES IN OCTOBER. MUCH MORE LIKELY THEY WILL SEE ONE IN DECEMBER. THE RISK WOULD BE A MUCH BIGGER NUMBER THAN EXPECTED AGAIN, WHICH WE NEED TO SEE SOME SORT OF REPRICING OF THE FED FROM HERE. IT FEELS LIKE THE MARKET IS PRETTY CONVINCED THAT WE ARE NOT COMING TO GET THAT AND WE WILL BE OK AND THAT MIGHT ACTUALLY TAKE A BIT OF THE PRESSURE OFF THE FED INSTEAD OF OFF OF THE BOND YIELDS, BUT DEFINITELY THAT IS GOING TO BE WEIGHING ON PEOPLE'S MIND, THE SITUATION IN THE MIDDLE EAST STILL UNRESOLVED AS WELL, AND THEN WE ARE GETTING CLOSER TO A WHOLE BUNCH OF POLITICAL RISK, INCLUDING THE U.S. MIDTERMS, SO KEEP IN MIND BE ON THAT AS WELL, FRAN. FRANCINE: GOOD CAME IN TERMS OF DATA POINTS TODAY. HOW WILL THAT INFORM THE FED'S THINKING? KIM:KIM: I THINK FED PAYROLLS. THE QUESTION IS IF THE UNEMPLOYMENT RATE CONTINUES TO FALL. BUT I THINK -- I DON'T THINK IT IS GOING TO SHIFT THE NEEDLE IN TERMS OF THE OCTOBER HIKE. WE EXPECT THEM TO DELIBERATE AS WELL IN DECEMBER, THE ECB AS WELL IN DECEMBER, AND THE BANK OF ENGLAND IN NOVEMBER. STILL MORE HIKES TO COME DESPITE FINANCIAL CONDITIONS. FRANCINE: BANK OF ENGLAND, ARE THEY GOING TO LOOK AT THESE MOVES AND WORRIED? DOES IT CHANGE THE WAY THE GOVERNMENT WILL DO BUDGET FOR 2020 EIGHT? KIM: IF YIELDS GO HIGHER, IT DOES BRING DOWN THE HEADROOM AND DOES PUT A BREAK ON HOW MUCH GOVERNMENTS CAN SPEND. THE BANK OF ENGLAND, I THINK THEY ARE LOOKING AT INFLATION. THEY HAVE DONE WHAT THEY CAN FOR THE LONG END, SO I THINK WHAT THEY DID WAS PRETTY IMPRESSIVE WITH THEIR CHANGES AND QUANTITATIVE TIGHTENING, SO NO LONGER SELLING DOWN THE LONGER DAYS OF AUGUST, LETTING THE SHORTER DATA BONDS PASSIVELY ROLL OFF AS WELL. ONLY ACTIVELY SELLING THE MIDDLE PORTION OF THEIR HOLDINGS. BUT THEIR FIGHT IS AGAINST INFLATION, AND IF THAT COMES, THEY WILL HAVE TO HIKE. FRANCINE: KIM, THANKS SO MUCH, AND BLOOMBERG'S PAUL DOBSON. BUCKLE UP. I FEEL LIKE IT IS GOING TO BE A BIG DAY. THE PENTAGON IS DEPLOYING AN ADDITIONAL AIRCRAFT CARRIER AND 10,000 SAILORS AND MARINES TO THE GULF. THE MOVE WOULD GIVE COMMANDERS MORE OPTIONS TO ESCALATE ATTACKS AGAINST IRAN AFTER PRESIDENT TRUMP SET A RAMP-UP IN MILITARY ACTION IS POSSIBLE AFTER NEXT MONTH'S MIDTERMS. THE MOVE ALSO COMES AS PRESIDENT TRUMP EMBARKS ON A CAMPAIGN TRAVEL BLITZ AHEAD OF THOSE ELECTIONS. LET'S BRING IN STEPHANIE BAKER. GREAT TO SPEAK WITH YOU. FIVE WEEKS TO THE MIDTERMS. WHY SEND 10,000 TROOPS TO THE MIDDLE EAST NOW? STEPHANIE: IT IS REALLY REMARKABLE. THE NEW TROOP DEPLOYMENT FOLLOWS SEVERAL WEEKS OF ATTACKS BY THE U.S. ON A RAINY AND TINKERS AND I RAN ATTACKS ON U.S. FORCES -- ON IRANIAN TANKERS AND IRAN ATTACKS ON U.S. FORCES. TR PROJECTED AN OFFER BY IRAN ON A CEASEFIRE AND MORE TALKS ON THE NUCLEAR DEAL. THE CONTEXT IS IMPORTANT. THE U.S. JUST WITHDREW ITS FORCES FROM IRAQ, SO PUTTING MORE NAVAL ASSETS IN THE REGION COULD HELP BALANCE THAT OUT. BUT THE TIMING IS EXTRAORDINARY BECAUSE THOSE FORCES WILL BE IN PLACE BY THE END OF OCTOBER, AND TRUMP HAS SAID HE WILL CONSIDER NEW BOMBING AFTER THE NOVEMBER 30 ELECTION. IT LOOKS LIKE TRUMP IS PREPARING THIS FORCE FOR EITHER DETERRENCE OR LEVERAGE AS PART OF DISCUSSIONS ON ENDING THE WAR AND GETTING IRAN TO THE TABLE FOR NUCLEAR TALKS. FRANCINE: STEPHANIE, PRESIDENT TRUMP'S APPROVAL ON THE ECONOMY AND COST OF LIVING HAS PLUNGED, SO WHAT IS HE ACTUALLY CAMPAIGNING ON? STEPHANIE: TRUMP IS AMONG A VERY SMALL GROUP OF PRESIDENTS WITH HISTORIC LOW APPROVAL RATINGS. HIS LATEST RATING IS ABOUT 32%, BUT IT IS EVEN WORSE, 26% APPROVE OF HIS HANDLING OF THE ECONOMY. HE IS TRYING TO NATIONALIZE THESE MIDTERMS, AND HE SAID YESTERDAY IN OKLAHOMA, YOU SHOULD CONSIDER ME ON THE BALLOT. HE'S TRYING TO MAKE THIS DIFFICULT ARGUMENT THAT THE ECONOMY IS ACTUALLY DOING REALLY WELL. HE APPEARED AT A TRUCK PRODUCER IN TEXAS TRYING TO TOUT HIS TARIFFS AS GOOD FOR THE U.S. ECONOMY, BUT AT A TIME MOST THINK THE COST OF LIVING IS TOO HIGH, INFLATION IS TOO HIGH AS A RESULT OF HIS TARIFFS IN THE IRAN WAR, I THINK THAT IS GOING TO BE A DIFFICULT ARGUMENT TO MAKE, AND I THINK IT IS REMARKABLE THAT HE IS STARTING OFF IN TRADITIONALLY VERY SAFE REPUBLICAN TERRITORY, AND I THINK THAT LOOKS LIKE AN ATTEMPT TO ENERGIZE THE MAGA BASE TO MAKE SURE THEY DON'T STAY HOME AND TURN OUT ON NOVEMBER 3. FRANCINE: IF REPUBLICANS FARE BADLY, WILL PRESIDENT TRUMP ACCEPT THE RESULTS? STEPHANIE: HE SAID HE WILL ACCEPT THEM CONDITIONALLY, SO ONLY IF HE CONSIDERS THE ELECTIONS TO BE HONEST AND FAIR. HE HAS CONTINUED TO ARGUE ABOUT ELECTION FRAUD. ROLL CALL MADE A VERY INTERESTING CALCULATION SAYING THAT HE HAS MENTIONED ELECTION FRAUD AT LEAST ONCE A DAY IN 2026. SO IT DOES LOOK LIKE HE IS POTENTIALLY LAYING THE GROUNDWORK TO CONTEST ANY LOSSES. BUT IT IS MUCH MORE DIFFICULT TO REJECT THE OVERALL RESULT OF THE MIDTERMS THAN IT WOULD BE A PRESIDENTIAL RACE. IT IS MORE DISPERSED STATE BY STATE, SO WHETHER OR NOT HE WILL CONTEST SPECIFIC OUTCOMES IN SPECIFIC STATES, ESPECIALLY IF THE SENATE IS QUITE CLOSE, THE OUTCOME THERE IS QUITE CLOSE. FRANCINE: SO INTERESTING. THANK YOU SO MUCH. STEPHANIE BAKER ON THE VERY LATEST WITH THE MIDTERMS. COMING UP, HOW IRELAND AIMS TO BECOME A TRUSTED HUB FOR AI. WE WILL SPEAK TO THE CHIEF EXECUTIVE OF THE ECONOMIC DEVELOPMENT AGENCY. THAT'S COMING UP NEXT. THIS IS BLOOMBERG. ♪ FRANCINE: IRELAND IS AIMING TO CONVERT THE AI BOOM INTO A COMPETITIVE ADVANTAGE BY MAKING IT TRUSTWORTHY ENOUGH FOR BUSINESSES TO SCALE. JOINING US IS THE CHIEF EXECUTIVE OF ENTERPRISE IRELAND, THE IRISH ECONOMIC DEVELOPMENT AGENCY. WHAT MORE CAN YOU TELL US ABOUT THIS GLOBAL AI SUMMIT THAT WILL BE HOSTED IN DUBLIN? WHO WILL BE THERE, AND ARE YOU EXPECTING A BIG ANNOUNCEMENT? >> THIS IS A REALLY EXCITING TIME IN THE AI ENVIRONMENT IN IRELAND. WE ARE HOSTING A FLAGSHIP SUMMIT IN DUBLIN. MAJOR INTERNATIONAL COMPANIES AND SPEAKERS WILL BE ATTENDING, PEOPLE LIKE STEVE SCHMIDT FROM AMAZON. WE WILL HAVE A KEYNOTE. THIS IS A MIX OF INTERNATIONAL CEOS, IRISH COMPANIES, YOUNG IRISH COMPANIES THAT ARE A DRIVING FORCE IN DEVELOPING AND IMPLEMENTING NEW AI, POLITICIANS, POLICYMAKERS. THE AIM OF THE SUMMIT IS TO HAVE A DISCUSSION ABOUT THE DEVELOPMENT AND RESPONSIBLE ADOPTION OF AI. FRANCINE: MANY AI LEADERS ARE NOW SAYING WE NEED TO SLOW DOWN. WHAT IS THEIR POSITION ON THIS? JENNY: THERE IS A COMPETITIVE ADVANTAGE IN GETTING COMPANIES TO ADAPT AND ADOPT EARLY, BUT COMPANIES WILL ADAPT AND ADOPT BEST WHEN THEY HAVE CERTAINTY. BUSINESSES DO NOT LIKE UNCERTAINTY. IN TERMS OF HAVING CLEAR FRAMEWORKS, CLEAR WAYS OF WORKING, TRANSPARENCY, SECURITY, ACCOUNTABILITY, WE BELIEVE THAT WILL HELP COMPANIES, PARTICULARLY SMALL AND MEDIUM ENTERPRISES, THE BULK OF EUROPE'S CLIMATE BASE, THAT WOULD SPEED UP THE ADOPTION OF AI, AND THAT IS WHERE WE BELIEVE EUROPE CAN HAVE A COMPETITIVE ADVANTAGE. FRANCINE: REGULATION OR NO REGULATION? JENNY: PROPORTIONATE REGULATION. IT IS ONE OF THE REAL ADVANTAGES THAT IRELAND BRINGS TO THE SUMMIT. WE CAN BE THE BRIDGE BETWEEN EUROPE'S AMBITION AND REGULATION AND THE GLOBAL TECH THAT IS COMING FROM THE U.S. AND WE ARE DOING THIS FOR MANY DECADES IN IRELAND, IN TIGHTLY REGULATED ENVIRONMENTS, AND WE DO IT WELL. FRANCINE: IRELAND HAS A FAIR NUMBER OF SOON TO BECOME UNICORNS. HOW MANY WILL IPO? JENNY: I DON'T KNOW AT THIS STAGE HOW MANY WILL. YOU CAN SEE THERE ARE IPOS AS WELL ON HOLD WHILE INVESTORS AND FOUNDERS LOOK AT THE INVESTOR ENVIRONMENT. I THINK WHAT IS ALWAYS VERY IMPORTANT IN IRELAND, WE NEED A DIVERSIFIED ENTERPRISE BASE, THAT WE WILL HAVE COMPANIES MOVING TO IPO, THAT WE WILL HAVE STRONG SCALING CAPITAL, STRONG VC, PRIVATE EQUITY, AND SO ON. THERE IS A REAL MOVE IN EUROPE NOW ON THE SCALING AGENDA AND IN TERMS OF THE NEW SCALING PHONE THAT WAS INTRODUCED BY EUROPE IN THE PAST 12 MONTHS. FRANCINE: THERE IS A GLOBAL BOND YIELD MOVEMENT, AND IT SEEMS LIKE EUROPE IS IN THE EYE OF THE STORM. IT DOESN'T HAVE A DIRECT IMPACT ON FOREIGN INVESTMENT LONGER-TERM -- DOES IT HAVE A DIRECT IMPACT ON FOREIGN INVESTMENT LONGER-TERM? JENNY: I CAN SPEAK ON BEHALF OF IRELAND. WE STILL HAVE A VERY VIBRANT FBI ENVIRONMENT. WE HAVE A GROWING INDIGENOUS ENTERPRISE BASE, AND WE HAVE SEEN EXPORTS FROM THAT BASE UP 89% IN THE LAST DECADE DESPITE ALL THE BUSINESS UNCERTAINTIES, INCLUDING THE PANDEMIC. WE HAVE A VIBRANT ECOSYSTEM AND AN ENVIABLE TILE AND POOL AND A TECH TALENT POOL IN IRELAND THAT WILL BE SO IMPORTANT WHEN IT COMES TO UPSCALING AND CROSS SCALING TO MEET THE DEMANDS OF AN AI POWERED INDUSTRY. FRANCINE: IT WAS THE FIRST TIME THAT THE BRITISH PRIME MINISTER OPENLY SPOKE ABOUT POSSIBLY REJOINING THE EU OR STRONGER TIES. HOW MUCH OF A DIFFERENCE WOULD THAT MAKE TO INVESTMENT? JENNY: THE U.K. IS AN INCREDIBLY IMPORTANT PARTNER FOR IRELAND. 29% OF OUR INDIGENOUS CLIENT EXPORTS COME THROUGH THE U.K. WE SURVEYED OUR COMPANIES BASED IN THE U.K. EARLIER THIS YEAR, AND 60% OF THEM THAT HAVE A PRESENCE IN THE U.K. ARE PLANNING TO EXPAND THEIR BASE HERE. THE U.K. PRIME MINISTER WOULD HAVE TALKED ABOUT MORE COLLABORATION IN MARITIME AND CYBERSECURITY AND OFFSHORE ENERGY. SO WE ARE VERY FORTUNATE TO HAVE A VERY STRONG TRUSTED PARTNERSHIP WITH OUR CLOSEST NEIGHBOR, THE U.K., BUT ALSO A TRUSTED PARTNERSHIP WITH OUR NEIGHBORS IN THE U.S., AND WE ARE ALSO PART OF THE EUROPEAN UNION. FRANCINE: WHAT DO YOU WORRY ABOUT THE MOST IN THIS NEW GLOBAL CONTEXT? WE TALK ABOUT DEFRAGMENTATION, WE TALK ABOUT TARIFFS. WHAT DOES IRELAND NEED TODAY? JENNY: IN TERMS OF BUSINESS LEADERSHIP, IN TERMS OF BUSINESS LEADERS BEING COMFORTABLE NAVIGATING UNCERTAINTY, THIS IS SOMETHING WHERE IRISH BUSINESS LEADERS HAVE EXCELLED OVER THE LAST 10 YEARS. THEY HAVE SHOWN INCREDIBLE RESILIENCE. IT IS IMPORTANT TO SEE INNOVATION AND THE RELAYS ARE FOCUSED ON COMPETITIVENESS, AND THAT WILL -- AND BE LASER FOCUSED ON COMPETITIVENESS, AND THAT WILL STAND AGAINST UNCERTAINTY AND COST PRESSURES. FRANCINE: I HEAR A CONVERSATION THAT THERE WAS A LOT OF RED TAPE, GOVERNMENTS DON'T SPEND ENOUGH TIME OR ENOUGH LOVE FOR THE BIGGER BUSINESSES. THERE'S A LOT OF FOCUS ON SMALL AND MEDIUM TERM ENTERPRISES, BUT MAY BE THE BIGGER ONES NEED ACCESS AND SHOWING AROUND. HOW DO YOU DO IT? JENNY: THAT IS ANOTHER AREA WHERE IRELAND EXCELS IN TERMS OF BEING ABLE TO MEET THE DEMANDS OF THE SME BASE AND ALSO MEET THE DEMANDS OF THE LARGE TECH COMPANIES ON AN ENTERPRISE, AND WE PLAY A: ELECTIVE ROLE IN KEEPING OUR LARGER HAPPENINGS CONNECTED WITH SMALLER COMPANIES, BUT ALSO WITH THE ECOSYSTEM IN IRELAND, I THINK THAT'S WHY IRELAND HAS AN IMPORTANT ROLE TO PLAY IN DRIVING AI DEVELOPMENT AND ADOPTION THROUGH EUROPE. FRANCINE: JENNY, THANK YOU FOR JOINING US. COMING UP, ANTHROPIC TARGETS ITS MEGA IPO BEFORE THANKSGIVING. MORE ON THAT NEXT. THIS IS BLOOMBERG. ♪ FRANCINE: GOOD MORNING EVERYONE. WELCOME TO "THE PULSE." I’M FRANCINE LACQUA HERE IN LONDON. THESE ARE YOUR TOP STORIES. EUROPEAN BONDS UNDER PRESSURE OVER CONCERNS OF FRANCE’S FISCAL POSITION SPREAD BETWEEN GERMAN AND FRENCH BONDS IS AT THE WIDE EASES IN YEARS. MILITARY PRESENCE IN THE MIDDLE EAST DEPLOYING AN EXTRA 10,000 TROOPS AFTER PRESIDENT TRUMP SAID BOMBING WILL RESUME AFTER THE MID-TERMS. BLOOMBERG LEARNS THAT ANTHROP ECK IS LOOKING TO GO PUBLIC AS SOON AS THE MIDDLE OF NOVEMBER WE’LL HAVE MORE ON THAT BLOOMBERG SCOOP. MORE ON THAT STORY. ANTHROPIC IS EXPECTING TO KICK OFF MARKETING FOR ITS IPO IN THE COMING WEEKS. THAT WOULD PUT IT IN LINE TO TRADE AHEAD OVER THE THANKSGIVING HOLIDAY. WE’RE JOINED BY OUR EXECUTIVE EDITOR FOR GLOBAL TECHNOLOGYINGS. FIRST OF ALL, PETER. CONGRATULATIONS ON THE SCOOP. IT IS A BIG ONE. A REALLY IMPORTANT ONE. WHAT DO WE KNOW ABOUT ANTHROPIC? THEY BELIEVE IT IS A GOOD TIME BECAUSE INVESTORS WILL BUY IT INTO. >> THERE IS A QUESTION. WILL THEY OR WON’T THEY? WE HAVE BEEN TALKING ABOUT IT FOR MONTHS. THIS IS A PARTICULARLY TUMULTUOUS TIME. IT WAS LESS THAN A MONTH AGO WE HAD JACOB COX RESIGN WHO SAID I CAN’T IN GOOD FAITH WORK AT ANTHROPIC BECAUSE THEY ARE GAMING WITH OUR LIVES. THERE IS CONCERN HOW RISKY AI IS. WE SAW PRESIDENT TRUMP MEET WITH THE HEAD OF ANTHROPIC AND OTHER PEOPLE. WE UNDERSTAND THEY ARE GOING TOP MEET WITH INVESTORS AS SOON A NEXT WEEK. THEY WANT TO HAVE THE MARKETING BEGIN IN EARL NOVEMBER AND PERHAPS THEY WILL GO PUBLIC AND HAVE THE STOCK TRADING BEFORE THANKSGIVING ALL OF THIS TIMING IS A LITTLE BIT FLEXIBLE. IT COULD GO AFTER THAT. THEY PLAN ON PROCEEDING. THEY EXPECT TO MAKE IT LARGEST IPO IN HISTORY OR PLAN ON MATCHING SPACEX’S IPO AND HIT A VALUATION OF $1.8 BILLION TO $2 BILLION. FRANCINE: WHAT DO YOU MAKE OF IT? DOES IT MEAN THEY DON’T THINK THEY WILL BE REGULATED OR DOES IT MEAN THE RACE WITH CHINA IS TOO IMPORTANT? >> WELL, THEY HAVE SAID THEY BELIEVE THEY NEED TO BE AT THE FRONTIER OF AI DEVELOPMENT PARTLY TO FIGURE OUT WHAT THESE RISKS ARE AND THEY CONSIDER THEMSELVES A POSITIVE ACTOR IN THIS SPACE AND THINK THINK THEY CAN HELP THEMSELVES. ELON MUSK CALLED IT FOUR EXEMPTIONAL CHESS. GIVE IT TO US IN THE IPO. BY THE WAY, WE’RE CREATING A RISK FOR HUMANITY GOING FORWARD. IN TERMS OF THE RISK IT WILL BE VERY INTERESTING TO SEE, AFTER THE FILING OF IPO DOCUMENTS HOW THE RISKS ARE LAID OUT HERE. AT LEAST ANTHROPIC AND THE OTHER AI COMPANIES HAVE MET WITH THE ADMINISTRATION IN THE UNITED STATES AND TALKED WHAT ABOUT THE PARAMETERS ARE LIKELY TO BE. THEY FEEL LIKE THEY HAVE A PATH FORWARD. FRANCINE: THE OTHER THING IS BROADCOM IS LENDING BILLIONS TO ANTHROPIC AND AMAZON IS SOFT FLOATING A LOT OF THE NVIDIA CHIPS. WE’RE TALKING ABOUT CIRCULAR AI FUNDING. >> WE HAVE SEEN NVIDIA DO THIS OF COURSE A LOT. IT IS USING ITS POWERFUL BALANCE SHEET TO BE ABLE TO HELP ITS CUSTOMERS BUY CHIPS FROM NVIDIA. WE’RE SEEING IT WITH BROADCOM TOO. THEY ASPIRE TO COMPETE AGGRESSIVELY NVIDIA. THEY WANT TO BACKSTOP MONEY IS COMPANIES LIKE ANTHROPIC CAN BUY THEIR CHIPS AND I THEY CAN BUILD OUT AT THIS POINT. WE HAVE SEEN THE CREDIT MARKETS A LITTLE BIT RICKETY. WE’LL SEE HOW THEY PROCEED. FRANCINE: I WAS SPEAKING WITH PAUL DOBSON. HE SAID IT DOESN’T REALLY MATTER. THEY DON’T CARE AS MUCH AS OTHERS WHAT HAPPENS TO SOME OF THESE CORPORATE BONDS FOR FUNDING. NVIDIA IS LIKE TODAY’S BIG TAKE. WHAT ARE WE FOCUSING ON? >> THIS IS A BIG STORY ALSO. OF COURSE NVIDIA IS THE LEADING PROVIDER OF THE AI ACCELERATORS THAT ARE USED TO TRAIN AI MODELS. WHAT IS THE ANTHROPIC USES, OPENAI USES AND THE CHINESE COMPANIES WOULD LIKE TO BE ABLE TO BUT THEY CAN’T GET THEM AS CUTTING EDGE AT THIS PONT. IT POINTS TO SYSTEMATIC FAILURES IN STOPPING NVIDIA CHIPS GETTING INTO CHINA, LIKE DEEPSEEK, ALIBABA. WE HAVE SEEN EXAMPLE AFTER EXAMPLE OF THESE COMPANIES IN ABLE TO GET THEIR HANDS ON NVIDIA CHIPS AND GET THEM INTO CHINA. THE SUPPLY CHANGE COMPLICATED. THEY DON’T SELL DIRECTLY TO THESE COMPANIES. THEY SELL TO SERVER MAKERS LIKE DELL, H. THE KNOW YOUR CUSTOMER RULES HERE ARE KIND OF LOOSE. NOT LIKE IN THE FINANCIAL INSTITUTIONS AND NOW U.S. OFFICIALS ARE BEGINNING TO ASK WHETHER NVIDIA NEEDS TO DO MORE. NVIDIA AND JENSEN HUANG SAID THERE IS NO SMUGGLING AND THEN THERE IS A SIGNIFICANT AMOUNT OF SMUGGLING. WELL, IT IS NOT OUR FAULT. U.S. OFFICIALS ARE NOT SATISFIED WITH THOSE EXAMPLES. THEY WANT TO SEE IF THEY CAN DOG BETTER. FRANCINE: BLOOMBERG’S EXECUTIVE EDITOR FOR GLOBAL TECHNOLOGY. GO READ OUR BIG TAKE ON NVIDIA. IT IS A FASCINATING READ AND DEEPLY RESEARCHED AND WELL WRITTEN. THE E.U. IS HOLDING EMERGENCY TALKS AFTER PRESSURE IF THE TRUMP ADMINISTRATION TO RELEASE DIESEL STOCKPILES. >> WE KNOW PRICES ON DIESEL ARE HIGH. I HEARD PRESIDENT KASHKARI TALK ABOUT IT A LITTLE BIT. IS THIS A ONE-TIME SPIKE OR SOMETHING LONGER? THE EUROPEANS ARE SITTING ON RESERVES OFLE. THEY SHOULD PROBABLY RELEASE SOME OF THIS. FRANCINE: GORGES OLLIE. WHAT DO WE KNOW ABOUT EUROPE’S RESPONSE? >> WE HAD AN EMERGENCY MEETING THAT WAS THAT WRAPPED UP ABOUT AN HOUR AGO. WE’RE WAITING TO GET A READOUT OF EVEN’S POSITION ON THIS. THE AIM FOR THE EUROPEANS IS TO COME PHOTO A COLLECTIVE VIEW ON THIS THEY ARE FACING A LOT OF PRESSURE FROM THE TRUMP ADMINISTRATION. YOU HEARD IT FROM JAMISON GREER AND WE HEARD FROM ENERGY SECRETARY CHRIS WRIGHT AND THE TREASURY SECRETARY SCOTT BESSENT. WE SHOULD SAY AT THE BEGINNING OF THIS WAR BACK IN MARCH THERE WAS THAT G-7 MEETING. AN AGREEMENT BETWEEN OECD NATIONS ABOUT RELEASING SOME OF THE STRATEGIC RESERVES ABOUT DAMPENING THE BLOW ON THESE PRODUCTS THAT RIPPED ACROSS THE THROW. MANY OF THE EUROPEAN NATIONS HAVE NOT RELEASED MOST OF THOSE RESERVES. THERE IS A QUESTION FOR MANY EUROPEANS AS TO WHO WERE THE THIS QUALIFIES AS AN EMERGENCY. YES, THERE IS UPWARD PRESSURE ON THE PRICES AND IT IS DAMAGING TO THE EUROPEAN ECONOMY BUT ACCORDING TO SOME PEOPLE WE SPOKE TO, CONTAINING PRICES IS NOT THE FUNCTION OF WHAT THESE STRATEGIC RESERVES ARE. THEY ARE FOR EMERGENCY SITUATIONS AND SOMETHING MUCH MORE CRITICAL THAN PRICES GOING UP. THAT BEING SAID, WE UNDERSTAND OVER THE LAST FEW MINUTES WE GOT HEADLINES THAT EMMANUEL MACRON HAS SPOKE ON THE PRESIDENT TRUMP AND MARK CARNEY AND IS GOING ORGANIZE A BROADER MEETING TO HAVE A WIDER DISCUSSION ABOUT WHAT CAN BE COACH THE POTENTIALLY AT THE G-7 LEVEL SAYING THERE SHOULD BE A G-7 DISCUSSION ABOUT OIL PRICES. WE WILL BE WATCHING THIS SPACE CLOSELY IN TERMS OF WHAT A COLLECTIVE APPROACH CAN BE. IF EVEN IF YOU RELEASE 10 MILLION, 50 MILLION, 100 MILLION BARRELES INTO THE MARKET, THAT EATS UP 300 MILLION BARRELS A DAY ON DIESEL. IF YOU LOOK AT DIESEL PRICES NOW, OUR SESSION LOW IS DOWN 5% FOR THE DAY. FRANCINE: THANK YOU SO MUCH. OLIVER CROOK WITH THE VERY LATEST ON DIESEL. EARLIER THIS WEEK, CHINA WARNED THE EUROPEAN UNION THAT IT WOULD RETALIATE IF IT IMPOSES BROAD TARIFFS ON GOOD AS THE U.S. HAS. THERE IS AN EXPECTED VISIT BY MARCOS SECOVICH. THANK YOU FOR BEING HERE WITH US ON "THE PULSE." WHAT DOES THE E.U. TODAY NEED FROM THE REST OF THE WORLD? >> LOOK, I THINK THE E., IS IN A K-SHAPED SITUATION. ON ONE HAND, THE EUROPEAN ECONOMY, ALL THE SHOCKS WE HAVE SEEN, INCLUDING DIESEL PRICES THAT ARE LOOMING OMINOUSLY HAS BEEN PRETTY STRONG CYCLICALLY. P.M.I.’S ARE PACKAGE IS BROADENING AND STRENGTHENING GROWTH. GERMANY, GERMANY’S LONG STANDING STAG NAT GIANT IS GROWING 1% THIS YEAR AND THE NETHERLANDS IS GOING THROUGH A BOOM IN SEMICONDUCTORS. YOU SEE THAT STRENGTH IN THE EUROPEAN ECONOMY. ON THE OTHER HAND THE IMPLEMENTATION, THE DRAGHI REPORT TWO YEARS IN IS AT 16%. A PRETTY ABYSMAL PERCENTAGE. THE LONG STANDING CHALLENGES EUROPE FACES ARE NOT REALLY BEING ADDRESSED AND THERE ARE REAL RISKS ON THE SHORT RUN. ON THE ONE HAND THERE IS THE SECOND CHINA SHOCK. CHINA’S EXPORTS HITTING EUROPEAN MANUFACTURING AS WE SPEAK AND THE FRENCH FISCAL SITUATION. FRANCINE: JITTERS. THE MARKET IS FALLING OUT OF BED. TALK TO ME A LITTLE BIT ABOUT WHETHER EUROPE HAS TO CHOOSE BETWEEN U.S. AND CHINA. WE SAW SPAIN, ONE OF THE FEW HEADS OF STATE WANTING TO GET CLOSER TO CHINA. HOW DANGEROUS IS THAT? >> MY PERM VIEW THE TRADE RELATIONSHIP BETWEEN THE U.S. AND EUROPE IS LARGER TWAN THE RELATIONSHIP EUROPE HAS WITH CHINA. I THINK THE SENSE AMONGST KEY OFFICIALS IN BERLIN, PARIS, BRUSSELS AND OTHER EUROPEAN CAPITALS, IT IS A RED ALERT ON CHINA BASICALLY DUMPING A LOT OF O ITS EXCESS CAPACITY INTO THE EUROPEAN MARKETS. EUROPE LOST 250,000 MANUFACTURING JOBS LAST YEAR. THE TRADE DEFICIT WITH CHINA IS AT $1 BILLION DAILY. THAT IS CAPTURE THE POLITICAL IMAGINATION. CHINA IS CONTINUING TO GROW OFF THE BACK OF NET EXPORTS. 1.57% THIS YEAR AND NEXT YEAR. EUROPE IS THE LARGEST OPEN MARKET AND IS ABSORBING THE COST OF THAT AND YOU AT AN INFLECTION POINT WHERE THE COMMISSION PARIS AND BERLIN ARE THINKING UP, FLIPPING THE SCRIPT AND GOING FOR MORE AMBITIOUS TRADE AND BUSH BACK AGAINST CHINA. THAT IS WHERE THE FOCUS IS. NOT THE U.S FRANCINE: WE TALK ABOUT CARS. WE TALK ABOUT COMPETITION IN EUROPE AND COMMON MARKETS. WE NEED SOME KIND OF BANKING UNION, CAPITAL MARKETS UNION. SEEMS TO ME ONE OF THE BIG PROBLEMS IS WE JUST LACK AI COMPANIES. YOU HAVE THIS RACE BETWEEN THE U.S. AND CHINA, WHERE DOES EUROPE FIT IN? >> THAT IS AN INTERESTING QUESTION. I THINK THE OPERATING MODE FOR EUROPE, BOTH GOVERNMENTS AND COMPANIES TO DO DOUBLE HEDGING. EUROPE HAS FALLEN OUT OF THE RACE TO COMPETE ON THE FRONTIER OF AI. THE LAST LASH CLOSE TO THE FRONTIER THREW IN THE TOWEL AND THAT MEANS EUROPE WILL BE RELIANT ON CUTTING EDGE AI MODELS FROM CHINA AND THE U.S A LOT OF FIRMS AND GOVERNMENTS ARE BASICALLY RELYING ON BOTH. OPEN WEIGHT MODELS AND CLOUDY SKIESED WEIGHT MODELS. SAY CHINA OR THE U.S. CUT EUROPE OFF FROM THAT TECHNOLOGY, THEY CAN SWITCH OR TO GOOD ENOUGH MODELS FROM EUROPE ITSELF. YOU HAVE TWO POCKETS WHERE THERE IS SOME HOPE. FIRST A LOT OF VALUE IS AN ADOPTION. IT PROJECTS EUROPE COULD GENERATE 4% GROWTH FROM APPLYING AI. THERE IS A SECOND SET OF NICHE SECTORS WHERE EUROPE IS BENEFITING FROM THE AI BOOM. THE SEMICONDUCTOR. EXPORTS LED BY ASML. EUROPE’S OLD ELECTRICAL GIANTS, THEY ARE PROVIDING A LOT OF MATERIAL GOING INTO THE DATA CENTER BOOM. THERE ARE SOME POCKETS OF STRENGTH FOR EUROPE ON THE AI FRONT. FRANCINE: VERY QUICKLY IS IT OVERREGULATING OR CAN ANYTHING BE DONE IF WE HAVE ALL OF THIS TURMOIL IN THE BOND MARKET? >> THERE IS ALWAYS A CONCERN ABOUT EUROPE REGULATING BEFORE THE MARKET HAS TAKEN OFF. THAT HOLDS FOR AI. UNFORTUNATELY GIVEN ALL THE OTHER SHOCKS THAT ARE HITTING THE EUROPEAN ECONOMY THAT REQUIRE POLITICAL ATTENTION, THE FOCUS IS NOT SO MUCH ON GETTING THAT PART OF PICTURE RIGHT. THE BROADER ISSUE I THINK FOR EUROPE IN THIS SENSE IS WHAT THEY ARE GOING TO DO ABOUT THEIR SEMI SUBJECTOR DEPENDENCIES. ASML, IT DOES NOT SELL ANY MACHINERY IN EUROPE ITSELF BECAUSE EUROPE DOES NOT PRODUCE SMALLER CHIPS. THERE IS SOME THINKING THERE ABOUT GENERATING A BUYER’S CLUB TO TAKE THAT MARKET OFF THE GROUND. FRANCINE: THANK YOU SO MUCH. CHIEF ECONOMIST AT THE CENTER FOR EUROPEAN REFORM. STILL AHEAD, WE’LL DISCUSS MARKET IMPLICATIONS OF FRANCE’S PLANS TO TACKLE ITS BUDGET DEFICIT. THAT IS COMING UP NEXT. THIS IS BLOOMBERG. ♪ FRANCINE: A SELLOFF IN GLOBAL DEBT HAS FUELED A ROUTE THAT IS HITTING HARDER AND FASTER THAN FRANCE MIGHT HAVE EXPECTED WITH NERVES FRAYING ABOUT MISSED TARGETS. JOINING US NOW IS THE HEAD OF ECONOMIC RESEARCH AT ALLIANZ TRADE. THANK YOU SO MUCH FOR JOINING US. WHAT HAPPENS NOW TO STABILIZE THINGS? IS IT THRESHOLDS ON SOME OF THE FRENCH BONDS, SOME OF THE SPREADS BETWEEN FRANCE AND GERMANY THAT NEED TO COME TO A CERTAIN LEVEL THAT PEOPLE SAY I WANT TO GO BACK IN OR IS IT JUST HAVING A BUDGET? >> DEFINITELY I THINK LOOKING AT THE SPREADS, WE CAN STILL WITNESS FURTHER RISES. WE ARE AT 130 BUT WE CAN EASILY REACH 150 AND IT STILL REMAINS ATTRACTIVE HOW FAR CAN WE GET UNTIL THE ECB NEEDS TO STEP IN BUT DEFINITELY HAVING HIGHER INTEREST RATES IS AN ISSUE FOR FRANCE. IN 2027 AND ALMOST 2026, WE ARE GOING TO SPEND MORE ON INTEREST EXPENSES THAN OUR PRIMARY DEFICIT. THAT IS CLEARLY A BIG ISSUE. IF YOU THINK ABOUT THE AMOUNT OF INTEREST EXPENSES, IT IS 2.6% OF GDP, THAT IS ACTUALLY CLOSE TO HOW MUCH WE SPEND ON EDUCATION AND MORE THAN WHAT WE SPEND ON DEFENSE. CLEARLY THE FACT THAT WE HAVE A BUDGET THAT LOOKS INTO HOW TO SLOW DOWN SPENDING FROM CURRENT TREND IS GOOD NEWS. THE BAD NEWS IS WE NEED A BUDGET IN ORDER TO CALM THINGS DOWN AND IT STILL CAN GET WORSE BEFORE IT GETS BETTER. WE STILL SEE THE RISK OF HAVING THIS BUDGET IS QUITE HIGH. WE UNDERSTAND SOME OF THE OPPOSITION MIGHT BE MORE CONSTRUCTIVE THAN IN THE. STILL IT IS NOT A DONE DEAL YET TO HAVE THIS FISCAL ADJUSTMENT THAT WE ARE LOOKING FOR FROM 5.4%. FRANCINE: TELL ME ABOUT WHAT THIS MEANS FOR POLICIES. IF YOU’RE MALENE LE PEN, DO YOU LOOK AT BONDS AND SAY I NEED TO BE MORE MARKET FRIENDLY? >> WELL, THEY SHOULD. AGAIN, WE ARE IN AN ENVIRONMENT IN FRANCE WHERE WE DON’T HAVE GROWTH. GROWTH IS ALMOST CLOSE TO 0. 0.5% THIS YEAR AND 0.9% NEXT YEAR. THINGS CAN GET WORSE. WE HAVE RISING INTEREST RATES EVERYWHERE. CLEARLY THAT IS AN ISSUE FOR CORPORATES BECAUSE THEY WILL HAVE LOWER PROFITABILITY BECAUSE OF HIGHER INTEREST RATES. MORE THAN HALF OF THE CORPORATES WILL RENEW THEIR DEBT IN THE NEXT 12 MONTHS AND HIGHER RATES. THAT IS ALMOST 0.7% OF MARGINS. HOUSEHOLDS WILL PAY MORE ON THEIR CONSUMER CREDIT AND OF COURSE -- HAVING MORE PRAGMATIC APPROACH WITH THIS BUDGET, IT IS IN THE INTEREST OF EVERYONE LOOKING AT THE NEXT ELECTIONS. THE PROBLEM IS WE WILL HAVE A MINORITY GOVERNMENT AND THIS DEADLOCK CAN CONTINUE. FRANCINE: AT WHAT POINT DO YOU SEE THE ECB IF AT ALL HAVING TO STEP IN? >> HAS THE CRITICAL QUESTION OF TODAY. TO BE HONEST, THERE IS A TOOL WHICH IS THE C PUMP WHICH HAS BEEN ANNOUNCED. EVERYBODIES IT IS THERE. THERE IS A QUESTION HOW FAR CAN THEY -- BECAUSE THERE IS SOME CONTAGIONS. NOT ONLY FRANCE. WHEN WILL THEY ACTUALLY STEP IN AND UNDER WHICH CONDITIONS? AGAIN, YOU NEED TO ACTUALLY ALLOW FOR A LOT OF REFORMS IN EXCHANGE OF THE CPI. THE IF WE HAVE THE SPREAD AT 180, 200, PROBABLY THERE IS A NEED TO DO THAT. BEFORE THEY THAT, THEY WILL NEED TO COMMUNICATE IN WHAT THEY CAN SUPPORT AND FIRST OF ALL LET’S NOT FORGET THEY ARE STILL CONTINUING TO DO A VERY HARSH QUANTITATIVE TIGHTENING WHICH IS ONE OF THE FEW, THE BANK OF ENGLAND HAS REDUCED THE BASE. THE FED IS BUYING BILLS. CLEARLY THERE IS SOMETHING TO DO THERE. FOR FRANCE, FOR EXAMPLE, IT IS 5 BILLION EURO PER MONTH, 20%. TO STOP QT BEFORE GOING INTO A MORE EXTREME LET’S SAY UNUSED YET C PUMP PROGRAM BUT WE KNOW CAN BRING LONG LASTING MARKET STIGMA AFTER THIS. FRANCINE: WHAT KIND OF CONVERSATIONS WILL FRENCH OFFICIALS BE HAVING? I DON’T KNOW WHETHER THERE IS A STABILIZING, IF SOMEONE DROPS OUT OF THE PRESIDENTIAL RACE IS THAT STABILIZING ENOUGH? WHAT ARE THE CHANCES OF SOME KIND OF BUDGET AGREEMENT? >> WELL, I THINK IN THE NEXT DAYS, WE NEED TO WATCH CAREFULLY WHAT IS FEASIBLE. WE KNOW THAT PROBABLY 49.37 WILL NOT BE USED. I DO BELIEVE IF MARKETS WILL SEE THERE IS INDEED ENOUGH CREDIBILITY TO ACTUALLY LOWER THE FISCAL DEFICIT TO 5.2 NEXT YEAR FROM 5.4, THE POINT IS TO GET TO SOMETHING THAT WARRANTS NO MORE WORSENING OF THE FISCAL DEFICIT. OF COURSE WE WILL STILL HAVE A LONG DEBATE ON PENSIONS AND HEALTHCARE SPENDING AND THERE WILL BE A FEW THAT WILL BE MORE DIFFICULT TO PASS THAN OTHERS BUT AT LEAST BETWEEN 10 TO 15 MILLION OUT OF THE 54 ARE LIKELY TO SEE IT. AS LONG AS WE MANAGE TO SHOW FISCAL CONSOLIDATION TO SOME EXTENT, LIKE MANAGING TO KEEP FISCAL DEFICITS IN CHECK, THIS WILL HELP THE RATES. BUT THERE IS MORE TO THAT WHICH WHICH IS INDEED THIS OVERALL EUROPEAN SITUATION AND DEFINITELY WE NEED TO FIND THE BUYER OUT THERE. WE HAVE SEEN THE LAST AUCTION FOR FRANCE, IT WAS NOT SO BAD. ASIAN REQUESTERS FINDING IT ATTRACTIVE WE WILL HAVE THIS MARKETS STABILIZATION MECHANISM THAT WILL BE MORE IN PLAY THE NEXT FEW DAYS. FRANCINE: THANK YOU. IN BRAZIL, A NEW POLL PUTS DA SYLVIA SILVA NECK AND NECK WITH -- DESILVA NECK AND NECK WITH BOLSONARO. THANK YOU FOR BEING WITH US. WHAT CAN WE EXPECT FROM THE FIRST ROUND? >> THANK YOU, FRANCINE. FIRST ROUND GOING TO BE A VERY TIGHT RACE. THE POLL HAVE IT NECK AND NECK. THERE IS SOME UNCERTAINTY ABOUT THE TURNOUT OF THE ELECTION. BOTH OF THE LEADING CANDIDATES ARE HATED BY HALF OF THE POPULATION. I THINK THE TURNOUT IS GOING TO BE KEY TO SHAPE THE ELECTORAL RESULT. IN THAT CASE, WE MIGHT SEE SOME SURPRISE WHEN THE VOTES ARE COUNTED. FRANCINE: HOW CAN MARKETS REACT? >> MARKETS APPARENTLY GIVE A LOT MORE CREDIT TO BOLSONARO IN TERMS OF HOW HE WOULD HANDLE THE ECONOMIC PROBLEMS OF THE COUNTRY. BRAZIL IS VERY IN DEBTED COUNTRY IN THE PUBLIC AND PRIVATE SECTORS. THERE IS A NEED FOR A BIG CONSOLIDATION. THE MARKETS THIBLES NARROW HAS A BERTH SHOT. BECAUSE OF THAT, WHAT WE HAVE SEEN? RECENT WEEKS, MARKET PRICES IN PARTICULAR, THE CURRENCY AND THE LONG-TERM YIELDS HAVE -- IN LINE WITH THE OSCILLATION IN THE PREDICTION MARKET. THE LEAD IN THE FIRST ROUND POLLS, WHAT WE WILL PROBABLY SEE IS THE MARKET RALLY. STRONGER THAN 510. THE YIELDS COULD LOWER BY 70 BASIS POINTS. IF IT IS LULA WHO IS IN THE LEAD, AND THAT POINTS TO SOME POSITION FOR HIS RE-ELECTION CHANCES, THEY MIGHT LEAD TO SOME DETERIORATION PRICES NAH PRICES. THE YOUTH CURVE POINTING SOME ADDITIONAL 100 BASIS POINTS OR SOMETHING LIKE THAT NOT ALL OF THE EFFECT IS GOING TO BE -- IT IS HIGHLY CONDITIONAL ON WHAT ELSE IS HAPPENING IN THE WORLD. THERE IS A LOT HAPPENING IN THE WORLD AT THIS MOMENT. FRANCINE: THERE CERTAINLY IS. DEPUTY CHIEF OF MERGING MARKETS AT BLOOMBERG ECONOMICS. SOME NEWS JUST IN. MEMBER NATIONS TO HAVE INTERNATIONAL EIGHTH AGENCY WILL RELEASE 100 MILLION BARRELERS DIESEL. THAT MIGHT HELP TO PLACATE THE TRUMP ADMINISTRATION AS IT PUSHES BRUSSELS TO DO MORE TO CUT FUEL PRICES. UP NEXT, IT IS "BLOOMBERG BRIEF." THIS IS BLOOMBERG. ♪