Investors Are Driving Government Bond Yields Higher

>> THURSDAY, OCTOBER 1. HERE'S WHAT'S ON THE AGENDA. GLOBAL BONDS GLAD TO SEE THE BACK OF SEPTEMBER WHICH LEFT 30 YEAR YIELDS AT A 24 YEAR HIGH. THE FRENCH PRIME MINISTER GETS READY TO SET OUT AS BUDGET WITH SPREADS AT DOUBLE EARLY SUMMER LEVELS. MICRON GETS A BULLISH FORECAST WHICH DOESN'T DO MUCH FOR ITS MARKET STOCK BUT NASDAQ FUTURES ARE HIGHER. TOM: THE STRENGTH IN TERMS OF THE NUMBERS AND THE OUTLOOK FOR MICRON UNDERPINNING THE POSITIVE PICTURING NASDAQ FUTURES RIGHT NOW. AS THINGS STAND, SET FOR A STRONG SESSION. EUROPEAN OPEN. FUTURES POINTING LOWER. STARTED STRONG YESTERDAY AND THEN ENDED UP DOWN HALF OF A PERCENT ON EUROPEAN STOCKS. THE 10 YEAR STATESIDE AFTER CORE INFLATION COME IN -- CAME IN SOFTER THAN EXPECTED. YOU ARE SEEING STEEPENING ACROSS THE CURVE. BRENT IS BACK BELOW 00 A BARREL. $97 PER BARREL. THE COUNTDOWN TO THE OPENING TRADE STARTS RIGHT NOW. GUY: FIRST OF OCTOBER. LAST QUARTER IS IN THE REARVIEW MIRROR. ARE WE GETTING 6% IN THIS QUARTER? THAT IS THE KEY QUESTION. YESTERDAY'S DATA PUSHING YIELDS HIGHER ONCE AGAIN. GDP PRINT WAS REALLY STRONG. THERE'S IMPORT FACTORS IN TERMS OF THE MIX BUT THE DATA IS STRONG AT THE MOMENT COMING OUT OF THE UNITED STATES. PCE STORY CAN LOWER BUT THAT WAS THE REVISION FACTOR. ARE WE FINALLY DONE WITH THAT DEBATE? LOOK AT THE COMPONENT PART. THEY DON'T PLAY -- PAINT A DISINFLATIONARY PICTURE. AND YOU'VE GOT CORE SERVICES ACCELERATING. ALL OF THIS POINTS TO AN INFLATION PROBLEM THE FED STILL HASN'T DEALT WITH. IF YOU CAN SEE THAT IN BREAKEVENS. ARE WE GOING TO 6%? IS THAT GOING TO BE THE NARRATIVE OF THE NEW QUARTER? THE BOND MARKET IS ON ALERT. ANNA: DIFFICULT TO PIVOT AWAY FROM THE THINGS WE'VE BEEN DEALING WITH IN SEPTEMBER. WHEN OUR COLLEAGUES RIGHT DOWN 10 REASONS WHY WE ARE ENTERING UPON SELLOFF, YOU KNOW THAT EVEN IF YOU FIX PART OF THAT, AN END THE CONFLICT IN THE MIDDLE EAST, THERE WOULD BE OTHER THINGS TO WORRY ABOUT. THERE WOULD BE GROSS TO THINK ABOUT. THERE WOULD BE TRADE WARS POTENTIALLY, CHANGING TREASURY OWNERSHIP THESE DAYS. EVEN IF WE WERE TO SEE THESE ISSUES GO AWAY FOR THE BOND MARKET, DOESN'T SEEM EASY TO WIPE THEM ALL AWAY JUST BECAUSE WE GOT INTO OCTOBER. GUY: WASN'T THE PICTURE YESTERDAY DECENT DATA? YET YOU ARE NOT SEEING A WAGE PRICE SPIRAL. THAT'S NOT HAPPENING. WE ARE NOT GETTING SECOND ROUND EFFECTS. STRONG ECONOMY. INFLATION IS A MAJOR PROBLEM. ANOTHER DAY, OIL PRICES BELOW 00 PER BARREL. GUY: ALSO, THIS IS ACCELERATING. 50% OF THE BASKET IS NORTH OF 3%. FINE. LOOK AT CONSUMER CONFIDENCE. I AGREE, IT IS INCREDIBLY LOW RIGHT NOW. WE WILL GET EMPLOYMENT DATA LATER ON THIS WEEK. THE PRESSURE IS COMING IN TERMS OF WHAT WILL HAPPEN. WE WILL GET TO MICRON ON A MOMENT -- IN A MOMENT. WHAT'S A BIG STANDOUT FEATURE IN TERMS OF THE NUMBERS THEY DELIVER? GREAT OUTLOOK. THE PICTURE LOOKS POSITIVE FOR NOW. BUT WAGES ARE THE FACTORS THAT ARE STARTING TO WEIGH. YOU ARE STARTING TO SEE WAGES STARTING TO COME THROUGH IN TERMS OF THE NARRATIVE. GUY: WHETHER WE PIVOT HERE IS -- ANNA: WHETHER WE PIVOT HERE'S A QUESTION. THE LEVEL OF YIELDS TO THE WEAKEST IN THE MIX IS ONE WORTH CONTEMPLATING. THE LOWEST LEVEL OF JUNK AND WE ARE MORE THAN 1000 BASIS POINTS ABOVE TREASURIES. THAT HAS MOVED REALLY QUICKLY. AS WE HEAR FROM OUR GUESTS, IT'S THE PACE OF CHANGE THAT MATTERS AND THE REASON, NOT THE LEVELS. 860 BASIS POINTS AT THE START OF SEPTEMBER. THAT STORY IS MOVING PRETTY QUICKLY. NOT HELPFUL FOR FRANCE EITHER. THE HIGHER BOND YIELD ENVIRONMENT. AT A TIME WHEN THE GLOBAL BONDS ARE ALL ABOUT HOW YOUR YIELDS, IT SEEMS THAT THE SPREAD IS WIDENING FOR FRANCE. 120 BASIS POINTS. WE HAVE A NEW BUDGET. SET OUT TODAY. THE THING WE ARE WATCHING FOR, AS WELL AS THE SURVIVAL OF THE PRIME MINISTER, IS WHAT THEY ARE ABLE TO DO ON THE DEFICIT. 5.4% FOR 2026. ARE THEY ABLE TO BRING IT DOWN FOR 5%? DOES THE GOVERNMENT SURVIVE AS IT TRIES TO DO THAT? GUY: THE FRENCH OFFICE INDICATED THAT IT WILL ASSUME RECORD NUMBERS OF BONDS NEXT YEAR. SO YEAH. YOU CAN GET THE DEFICIT DOWN BUT YOU ARE STILL ISSUING LOTS OF DEBT. 126 OR SOMETHING IN TERMS OF THE SPREAD. TOM: YES. GUY: AT WHAT POINT DO THE INSTITUTIONS OF EUROPE START TO HAVE A PROBLEM WITH THIS? 130, 140, 150? WHEN DO WE START TO GET INSTITUTIONAL PUSHBACK? THAT'S WHAT TRADERS WILL BE THINKING THAT -- ABOUT IN TERMS OF THEIR POSITIONING. HOW MUCH FURTHER OUT CAN THIS GO UNTIL YOU START TO GET EUROPE RALLYING AROUND? TOM: INTEREST A COST FRANCE OF 91 BILLION EUROS. MORE THAN EDUCATION, MORE THAN DEFENSE. GDP OF 120 PERCENT. YOU POTENTIALLY GET A DEFICIT OF 6% DEPENDING ON HOW THE BUDGET UNFOLDS. SO THAT'S A MAJOR TOPIC. WE WILL SEE HOW THEY REACT. ANNA: BEFORE WE GET TO SPECIAL MEASURES, THERE IS SOME OTHER SORT OF NUMBER WE NEED TO BE AWARE OF. 59.3. THE ARTICLE IN THE FRENCH CONSTITUTION THAT MIGHT BE RELIED ON FOR THE GOVERNMENT TO GET THIS THROUGH EVEN IF THEY CAN'T PASS IT BY THE LEGISLATORS. IF THEY CAN SAY WE PASS THIS, OTHERWISE YOU HAVE TO DO A NO-CONFIDENCE VOTE. IF THEY ARE NOT PREPARED TO DO THAT, IT PASSES. GUY: IF SHE THINKS SHE CAN WIN THE ELECTION NEXT YEAR, SHE WOULD WANT TO BACK THIS. ANNA: THAT'S THE CHANGE THIS TIME AROUND VERSUS OTHER FRENCH DRAMAS. GUY: MARINE LE PEN DOESN'T WANT TO FIND YOURSELF IN A SITUATION WHERE EUROPE IS HAVING TO PROTECT FRANCE. THAT WILL COME WITH CONDITIONALITY AND THAT WILL TIE HER HANDS. TOM: TRYING TO GET MORE LEEWAY ON THE DEFICIT IN ITALY BECAUSE OF ENERGY COSTS. LET'S TALK ABOUT OTHER COST MEASURES. THIS IS SOMETHING YOU ZEROED IN ON, MICRON AND THE EARNINGS THAT CAME THROUGH. ONE OF THE KEY LINES WAS THAT GROSS MARGINS ARE GOING TO BE A LITTLE BIT SLIM. STILL NORTH OF 80%, AROUND 83% GROSS MARGINS. THEY WILL BE NARROWER BECAUSE THEY ARE RAISING COMPENSATION FOR THEIR EMPLOYEES AS THEY SEE THIS SIGNIFICANT DEMAND. IT WAS A CLEAN BEAT FOR MICRON. FOR THE CURRENT QUARTER, IT WAS A BEAT IN TERMS OF PROFITS, REVENUES. EXPECTED REVENUES NORTH OF 61.5 BILLION. A REMINDER THAT THE DEMAND CYCLE AROUND AI IN THE U.S. REMAINS STRONG. BUT THEY WILL BE PUTTING UP WAGES. GUY: IT'S INTERESTING. HE WROTE A PIECE THIS MORNING THAT TALKED ABOUT THE PROFIT BUBBLE. THIS IS WHAT YOU ARE SEEING IN TERMS OF THE INFLATION RECORD. SPECTACULAR. THERE'S A CLEAR CONCENTRATION IN THE CHIPS AT THE MOMENT. THAT'S THE POINT IN THE CYCLE WE ARE AT. AT SOME POINT ULTIMATELY, DO WE REVERSE? YOU ARE GETTING A RELATIVELY MUTED RESPONSE OFF THE BACK OF THE MICRON NUMBERS BECAUSE PEOPLE ARE GOING, HOW LONG CAN THIS LAST FOR? THIS IS AMAZING AND GREAT, BUT CAN I TRACK THIS FOR QUARTERS OUT, EIGHT QUARTERS OUT? ANNA: WE ARE MINDFUL OF THE FACT THAT IT IS THE FIRST OF OCTOBER AND PEOPLE ARE STARTING WITH A CLEAN SLATE. MAKING NEW DECISIONS, NEW CALLS. WHAT DO I WANT TO BE EXPOSED TO IN OCTOBER? ESPECIALLY AFTER THE DROPS IN THE STOCKS. GUY: WE'VE ALSO ROLLED ON BRENT. JUST A MECHANICAL FACTOR AS TO WHY OIL IS LOWER. YOU GO FROM NOVEMBER TO DECEMBER. UBS WEALTH MANAGEMENT. FRANCE CIO ON DECK. WHAT WE NEED TO KNOW. LABORIOUS CEO, THE LEGAL AI PLATFORM IS GOING TO BE JOINING US. LOOKING FORWARD TO THAT CONVERSATION. TOM: LET'S LOOK AHEAD TO WHAT ELSE WE ARE WATCHING THROUGHOUT THE DAY. 9:00 U.K. TIME. ANDREW BAILEY SPEAKING AT THE FUTURE OF MONEY CONFERENCE. LISTENING OUT FOR ANYTHING INTERESTING HE HAS TO SAY. U.S. JOBLESS CLAIMS, BUILDING ON THE DATA AND THE COLOR AROUND THE LABOR FORCE. 2:30, CHRISTINE LAGARDE SPEAKING AT THE EUROPEAN SYSTEMIC RISK AWARDS ANNUAL CONFERENCE IN FRANKFURT. LATER, OTHER CENTRAL BANKERS IN FOCUS. FED SPEAK FROM CHRIS WALLER, LISA COOK, TOM BARKIN, LORIE LOGAN. NIKE EARNINGS AS WELL AFTER MARKET. THAT WILL BE INTERESTING AS WE LOOK AT THE MACRO DATA ON THE CONSUMER POINTING TO STRENGTH. ANNA: PASSENGERS AND CREW OF A FLIGHT ARE HAILED AS HEROES AFTER SUBDUING A PILOT WHO TRY TO CRASH THE PLANE TRAVELING FROM DUBAI TO TEL AVIV. MORE ON THAT LATER IN THE PROGRAM. PLUS, THE STOCKS WE ARE WATCHING THIS MORNING AT THE EUROPEAN OPEN. EUROPEAN TECH SPACE. HOW MUCH WILL IT PARTICIPATE IN ENTHUSIASM AROUND MICRON? THE FUTURES DON'T LOOK PRETTY FOR ME -- SO MAYBE NOT. WE WILL BE JOINED BY THE HEAD OF U.S. ECONOMICS RESEARCH AT BANK OF AMERICA. WE WILL TRY TO GET TO THE BOTTOM OF THE STRENGTH IN THE U.S. ECONOMY. IF YOU WANT TO GET IN TOUCH WITH THE PEOPLE WHO PUT TOGETHER THE PROGRAM. THIS IS BLOOMBERG. TOM: WELCOME BACK. HAPPY THURSDAY. 45 MINUTES FROM THE OPENING TRADE. EUROPEAN FUTURES POINTING DOWN. VERY DIFFERENT PICTURE ACROSS NASDAQ FUTURES. MICRON PLAYING A ROLE THERE. U.K. FTSE 100, COOLER BY 74 POINTS. IN FRANCE, POINTING DOWN BY 4/10 OF 1%. ANNA: LET'S TALK ABOUT THAT MICRON STORY. ASIAN TECH STOCKS GETTING A BOOST THIS MORNING FOR MICRON WHICH GAVE AN UPBEAT FORECAST FOR THE CURRENT QUARTER. THE COMPANY FORECASTING FIRST QUARTER REVENUE WELL ABOVE ESTIMATES AFTER A RECORD 2026. THE HIGHER WORKER COMPENSATION WILL SQUEEZE MARGINS. LET'S BRING IN OUR BLOOMBERG MARKETS REPORTER. TALK US THROUGH THE LATEST ON THIS CHIPMAKER. I KNOW WE ARE TALKING ABOUT THE SQUEEZE ON MARGINS AS A RESULT OF WAGES AND THAT IS AN IMPORTANT NARRATIVE. I'M STILL MARKETING -- MARVELING AT THAT FIGURE VERSUS THE REST OF THE TECH SECTOR AND OTHER SECTORS. >> IT'S A FANTASTIC RESULT RIGHT THERE. THEY BEAT THIS QUARTERS ESTIMATE. THEY BEAT ON THE GUIDANCE RACE. THE MARGINS ARE IN THE HIGH 80'S. IT'S IMPORTANT TO MENTION THAT ON A GROSS LEVEL, THIS PUTS MICRON'S EARNINGS IN THE NVIDIA CATEGORY. LIKE NINE MONTHS AGO. WE ARE REALLY IN THE REALM OF SOME REALLY MEGA CAP KIND OF EARNINGS NOW. IT WAS INTERESTING TO SEE MICRON GET REALLY SLOW OFF THE BLOCK DURING THE AFTERMARKET SESSION. THAT SPEAKS TO THIS WORRY AROUND PEAK EARNINGS IN THE AI SPACE. THE EARNINGS BUBBLE. HOW MUCH OF THIS REPEATABILITY IS THERE. MANAGEMENT DID TRY TO ADDRESS THAT CONCERN BY TALKING ABOUT LONG-TERM COMMITMENTS FOR AI SPENDING. ASIA TOOK TIME TO WARM UP TO THAT THEME AND IS ONLY NOW IS ERUPT COMES IN THAT YOU SEE A HUGE BID ACROSS THE BOARD IN TECH AND NASDAQ FUTURES. CLEARLY THERE IS DEBATE AROUND HOW MUCH OF THAT IS REPEATABLE. IT HAS TAKEN A SHARP DROP IN OIL TO KEEP THE TECH TRAIN UP HIGHER. IT REALLY LOOKS TO BE A COMBINATION OF FACTORS THAT ARE REQUIRED TO CONTINUE TO MOVE THE TRADE HIGHER. THE RESULT IS GREAT BUT WE NEED YIELDS TO MODERATE. WE NEED THE TECH TRADE TO HAVE A LOWER BAR FROM A MACRO PERSPECTIVE TO KEEP GOING. GUY: OUR YIELDS GOING TO MODERATE? THAT'S THE QUESTION. THE RATE OF CHANGE WAS EXTRAORDINARY. DOES IT CONTINUE? ANTHONY: WE CONTINUE TO KICK ON IN AUSTRALIA, IN JAPAN, AND INCREASINGLY IN EUROPE. THE SAME THEMES APPLY COMING INTO THE NEW QUARTER AS THEY DID LAST QUARTER. THAT IS SETTING UP AN UNFAVORABLE COMPARISON WITH EQUITIES WHICH IS THE FIRST PROBLEM THAT BONDS NEED TO SCALE. WHAT IS THE INVESTMENT CASE IF EQUITIES ARE DOING WELL? YOU HAVE THE SUPPLY PROBLEM AS WELL. JGB 10 YEARS SELLING OFF INTO A PACKED CALENDAR OF ISSUANCE NEXT WEEK. WE HAVE MICRON GUIDANCE. THEY TALKED ABOUT THE DATA CENTER BUILD GOING INTO 2027. SO THAT'S POWERED BY A LOT OF AI LENDING AND BORROWING IN THE CAPITAL MARKETS WHICH AGAIN WILL WAY. THE U.S. DATA AND THE EUROPEAN PHYSICAL CONCERNS ARE COMING TOGETHER IN AN INTERESTING MANNER. U.S. ECONOMIC STORY IS VERY STRONG. YOU DO HAVE A RELUCTANCE TO HIKE WHICH PUTS PRESSURE ON THE BELLY OF THE CURVE. MEANWHILE, EUROPEAN BUDGETS PUSHING IN THE SAME DIRECTION. IT LOOKS LIKE FRANCIS BUDGET WILL BE FASCINATING. FRENCH BONDS HAVE BEEN LEAVING BONDS WEAKER. IT WILL BE INTERESTING TO SEE WHETHER THERE'S ANY FISCAL DISCIPLINE THAT COMES OUT OF THIS BOND MARKET MOVE ON THE LONG END. UNLESS WE SEE THAT, IT DOESN'T LOOK LIKE VALUE BUYING AT HIGH YIELDS IS GOING TO TRACE THIS. GUY: YEAH. GREAT UPDATE. THANK YOU VERY MUCH INDEED. HEAD OF U.S. ECONOMIC RESEARCH AT BANK OF AMERICA. GOOD MORNING. >> GOOD MORNING. THANK YOU FOR HAVING ME ON. GUY: IS THE U.S. ECONOMY OVERHEATING? >> IS AT RISK OF OVERHEATING. THE TWO FACTORS THAT STOP US FOR -- FROM CALLING FOR OVERHEATING IS THAT WAGE INFLATION IS SOFT AND GAS PRICES ARE PROBABLY A BIT TOO HIGH RIGHT NOW. GASOLINE MOVED DOWN TO FOUR DOLLARS OR SO PER GALLON. THAT OPENS UP ROOM FOR ADDITIONAL DEMAND. IF YOU HAD THAT WITH A PICKUP IN WAGES, YOU ARE OFF TO THE RACES. GUY: SHOULD THE FED BE HIKING MORE AGGRESSIVELY? >> WE THINK THE FED WILL GO AGAIN IN OCTOBER AND DECEMBER. AT THAT POINT, YOU CAN TAKE A PAUSE. SEE HOW THE BASE EFFECTS WORKOUT ON INFLATION FOR THE NEXT THREE MONTHS AND DECIDE IF YOU NEED TO COME BACK TO DO MORE IN THE SECOND HALF OF NEXT YEAR. ANNA: GOOD MORNING. TALK TO US ABOUT THE U.S. CONSUMER. ARE THERE JUST TO DIFFERENT CONSUMERS? ON THE ONE HAND, CONSUMPTION HAS BEEN BENEFITING FROM HIGHER ASSET PRICES. ON THE OTHER, HE OTHERS SEE A HIGHER COST OF LIVING. THEY MUST STRUGGLE. >> IT'S AN INTERESTING QUESTION. THIS WOULD BE SPENDING ON CREDIT AND DEBIT CARDS. YOU SEE THERE IS CLEARLY A K-SHAPED CONSUMER FROM EARLY LAST YEAR TO THE MIDDLE OF THIS YEAR. OVER THE SUMMER, YEAR-OVER-YEAR GROWTH TRADES, THEY BASICALLY CONVERGE. THERE'S LESS OF A K-SHAPED STORY NOW. HIGHER INCOME FOLKS HAVE DONE WELL IN THE EQUITY MARKET. THE PICKUP AND JOB GROWTH HAS BEEN BENEFICIAL FOR LOWER INCOME FOLKS. THEY'RE SPENDING IS PROBABLY MORE SENSITIVE TO LABOR INCOME BECAUSE THEY HAVE LESS. ANNA: CONSUMER SPENDING IS AT A ONE YEAR HIGH. ECONOMY SEEMING TO SURGE AHEAD. CONSUMER CONFIDENCE, REALLY WEAK. WHAT DOES THAT TELL US ABOUT THE PATH AHEAD? ADITYA: THERE'S BEEN A DICHOTOMY BETWEEN SPENDING AND CONFIDENCE. CONFIDENCE USED TO BE A USEFUL INDICATOR OF SPENDING. IT'S NOT ANYMORE. WEAKNESS IN CONFIDENCE IS A FUNCTION OF CUMULATIVE INFLATION. A FUNCTION OF POLITICAL POLARIZATION. THE BOTTOM LINE IS THAT IT HASN'T AFFECTED SPENDING FOR SEVERAL YEARS NOW AND I DON'T THINK IT WILL GOING FORWARD. TOM: YOU EXPECT ANOTHER TO HIKES FROM THE FEDERAL RESERVE. IS YOUR ASSUMPTION THAT CORE INFLATION IS LOWER THAN ESTIMATES? IS THAT AS GOOD AS IT GETS ON INFLATION? ADITYA: WE KNEW THERE WOULD BE REVISIONS. THE FED HAS BEEN FACTORING THIS IN. MAYBE ON THE MARGIN THERE WERE LARGER THAN EXPECTED. BUT WE'VE BEEN SINGING FOR THE LAST TWO YEARS THAT UNDERLYING INFLATION IS STUCK AROUND 2.5%. NOW YOU HAVE LOWER INFLATION BUT YOU ALSO HAVE ONE LESS FACTOR. IF YOU TAKE OUT THE EFFECTS OF IRAN AND THE EFFECTS OF TARIFFS, ALL THAT ROLLS OFF AND WE KNOW PROBABLY THE AROUND PASTOR GETS WORSE BEFORE IT GETS BETTER. YOU STILL LAND AT 2.5%. THAT'S THE SIZE OF THE FED PROBLEM IN OUR VIEW. THAT'S WHY WE ARE HOPEFUL THAT 75 BASIS POINTS WILL BE ENOUGH TO ADDRESS THAT PROBLEM. THEY NEED TO GO DECISIVELY WHICH IS WHY WE'VE BEEN SAYING SINCE JUNE, SEPTEMBER, OCTOBER, DECEMBER. TOM: WHAT DOES THAT DO TO YIELDS? ADITYA: POTENTIALLY COULD HELP YIELDS. AT THE LONG END. IF THE FED SHOWS AGAIN DECISIVENESS, CONVEYED -- COMMITMENT, THAT'S ONE LESS THING FOR THE BOND TO WORRY ABOUT. I DON'T THINK CHAIR WARSH CAN SAVE THE BOND. HE CAN CERTAINLY HELP AND NOT MAKING THINGS WORSE. GUY: ARE YOU SEEING EVIDENCE OF CROWDING OUT? ADITYA: IT'S INTERESTING. CREDIT SPREADS ARE NOT SHOWING EVIDENCE OF THAT. GUY: ARE YOU BEGINNING TO GET A LITTLE BIT OF THAT? ADITYA: A LITTLE BIT. THE CONCERN SEEMS TO BE IN THE OTHER DIRECTION. GUY: WHAT ABOUT THE REST OF THE ECONOMY? IS IT OK? IS IT BEING CROWDED OUT? YOU PUT THE GOVERNMENT AND AI TOGETHER, WHAT'S LEFT? ADITYA: THE TWO BIG ENGINES OF U.S. GROWTH HAVE BEEN AI CAPEX AND CONSUMER SPENDING. CONSUMER SPENDING ISN'T SUPER SENSITIVE TO INTEREST RATES. ONE OF THE BIG PASS-THROUGH CHALLENGES IS MORTGAGES. EVERYONE IS LOCKED IN TO VERY LOW FIXED RATE MORTGAGES. THAT'S TAKEN CARE OF. THEN THE AI ISSUANCE THAT HAS BEEN RELATIVELY RATE INSENSITIVE. THAT ALLOWS THE CYCLE TO CONTINUE. I THINK ONE HIGHER YIELDS ARE REFLECTING IS ALSO FUNDAMENTAL. THE U.S. GOVERNMENT SPENDS ABOUT $7 TRILLION A YEAR. TAKES IN ABOUT FIVE AND THAT NEEDS TO BE FIXED. ANNA: AS WE LOOK AHEAD TO JOBS DATA TOMORROW, HOW DO YOU CHARACTERIZE THE LABOR MARKET? THE ADP NUMBER WAS STRONG YESTERDAY. YOU HAVE A BELOW CONSENSUS EXPECTATION FOR TOMORROW. WHAT IS THE STORY FOR JOBS? ADITYA: THE STORY FOR SEPTEMBER JOBS IS LARGELY SEASONAL. WE THINK UNDERLYING JOB GROWTH IS QUITE STRONG. CONSISTENT WITH WHAT YOU SAW IN THE ADP NUMBER. YOU HAD A FAVORABLE SEASONAL ADJUSTMENT. THAT GETS PAID BACK IN SEPTEMBER. THE BROADER TAKE ON THE LABOR MARKET IS THAT IT IS STABLE. SO FAR, THE INDICATIONS ARE MIXED. IT'S NOT WEEK. BUT THE THING TO WATCH FOR IS WAGE INFLATION. THE UNEMPLOYMENT RATE CONTINUES TO FALL. A FEW MONTHS DOWN THE LINE, IT'S BELOW 4%. THEN I'M WORRIED ABOUT WAGES STARTING TO ACCELERATE AND THEN YOU THINK, THIS COULD BE A FULL-BLOWN HIKING CYCLE FROM THE FED RATHER THAN A MIDCYCLE ADJUSTMENT. TOM: HOW SHOULD INVESTORS BE THINKING ABOUT THE MIDTERMS IN THE U.S.? ADITYA: I DON'T THINK THERE WILL BE A TON OF EFFECT. WE DON'T FORECAST ELECTION OUTCOMES. IT LOOKS LIKE WE WILL END UP WITH DIVIDED GOVERNMENT. I WOULDN'T EXPECT ANYTHING TO GET DONE FROM A LEGISLATIVE PERFECTIVE. IF YOU LOOK AT THE TWO EXTREME SCENARIOS. IF IT WAS A BIG WAVE ELECTION THAT DEMOCRATS WON A LOT OF SEATS, THERE IS SOME CONCERN AMONG INVESTORS THAT PERHAPS THERE WILL BE MORE AI RELATED REGULATION. ON THE OTHER HAND, IF REPUBLICANS SWEEP, I WOULD EXPECT ANOTHER FISCAL BILL THAT COULD INVOLVE A PICKUP IN DEFENSE SPENDING FOR EXAMPLE WHICH COULD BE PROBLEMATIC FOR THE DEFICIT. TOM: IT COULD GET WORSE IF THE REPUBLICANS DO BETTER THAN EXPECTED? ADITYA: IT DEPENDS. THEY ARE GOING TO TRY TO INCREASE FED SPENDING. IT'S A QUESTION OF HOW YOU PAY FOR IT. TOM: HEAD OF U.S. ECONOMIC RESEARCH AT BANK OF AMERICA. GUY: WHAT ELSE DO YOU NEED TO KNOW THIS THURSDAY MORNING? BENJAMIN NETANYAHU HAS PRAISE PASSENGERS AND CREW WHO HELPED OVERPOWER A PILOT AFTER HE STABBED HIS COPILOT WHILE FLYING TO TEL AVIV. THE PILOT WAS ATTEMPTING TO CRASH THE JET WHICH WAS CARRYING MORE THAN 170 PASSENGERS ON A FLIGHT THAT TOOK OFF FROM DUBAI. LATER MADE AN EMERGENCY LANDING. THE ATTACKERS IDENTITY HAS NOT BEEN DISCLOSED. HE'S BEING QUESTIONED BY LOCAL AUTHORITIES. CHRISTINE LAGARDE SAID SHE MIGHT CUT SHORTER TERM AS EUROPEAN CENTRAL BANK PRESIDENT BEFORE IT'S OFFICIAL AND IN OCTOBER 2027. SHE SAID THAT SHE CANNOT RULE OUT THE POSSIBILITY OF LEAVING A FEW MONTHS BEFORE THE END OF HER TERM. GOOGLE GRAPPLING WITH INTERNAL SKEPTICISM OVER PERFORMANCE OF ITS NEW FLAGSHIP AI MODEL. IT WAS RELEASED YESTERDAY. THEY SAID IT POSTED LEADING SCORES INCLUDING SECURITY SKILLS. BUT SOME INSIDERS SAY METRICS DON'T TELL THE WHOLE STORY. SAYING IT STRUGGLES TO HANDLE CERTAIN CODING TASKS. A LOT OF QUESTIONS WHETHER THIS IS THE WRONG PRODUCT NOW. YOU HAVE MET DOING INTERESTING THINGS IN TERMS OF AGENTS. THAT'S WHAT THE CONSUMER IS GOING TO LATCH ONTO. YOU DON'T NEED CUTTING EDGE MODELS. YOU NEED SOMETHING THAT'S USEFUL. ANNA: THERE'S A SPECTRUM OF OPINIONS INSIDE GOOGLE ABOUT GOOGLE'S OWN PRODUCT. WE ARE SUPPOSED TO GET THE ANSWERS AND THIS WOULD SEEM TO BE DEMONSTRABLY PROVABLE IN SOME FORM. THERE IS STILL A RANGE OF OPINIONS AS TO HOW GOOD IT IS. TOM: THEY SIDELINED ONE MODEL THEY WERE PLANNING TO RELEASE. THERE WAS THAT INTERNAL PRESSURE TO BE AT THE FRONTIER. GUY: IS THAT THE RIGHT THING TO DO? TOM: IT MAY NOT BE. OUR REPORTING SUGGESTS THERE'S AN OVERFOCUS ON BENCHMARKING RATHER THAN ACTUALLY CREATING PRODUCT THAT'S USEFUL. FOR THE CONSUMER AND FOR THE ENTERPRISE. ANNA: THERE'S ANOTHER REASON TO PACE THE FRONTIER THEN. NOT JUST THE FUTURE OF HUMANITY BUT WHETHER IT'S GOING TO BE WHERE THE MONEY IS. TOM: COMING UP, BUDGET DAY IN FRANCE. WE DISCUSSED WHAT TO EXPECT IN THE OUTLOOK FOR THE NATION'S ECONOMY AS WE SEE THAT SPREAD OVER GERMAN DEBT AT 127. THAT CONVERSATION IS COMING UP. THIS IS BLOOMBERG. ♪ GUY: FIRST OF OCTOBER, GOOD MORNING. "THE OPENING TRADE." LET'S TALK ABOUT THE FUTURES PICTURE WHICH LOOKS GRIM ON OUR SIDE OF THE ATLANTIC. WE ARE DOWN REASONABLY HARD THIS MORNING. WE BASICALLY SAW U.S. MARKETS YESTERDAY CRATERING TOWARD THE BACK END OF THE SESSION WHICH NOW NEEDS TO BE PRESSED INTO EUROPE SO IN SOME WAYS, THIS IS YESTERDAY'S NEWS THAT YOU'RE LOOKING AT ON THE SCREEN THIS MORNING. IF YOU WANT TO LOOK AT TODAY'S NEWS, TAKE A LOOK AT WHAT IS HAPPENING WITH THE FUNCTION ON YOUR BLOOMBERG. NASDAQ FUTURES OF BY 1.4% RIGHT NOW. IT'S INTERESTING. THE S&P IS BASICALLY BACK TO WHERE IT WAS IN TERMS OF THE FUTURES PICTURE RIGHT NOW. BUT THE NASDAQ IS DEFINITELY OUTPERFORMING. SO IT LOOKS LIKE THERE IS A TEXT TRAIT TO BE HAD IN THE U.S. THIS MORNING AND AS THEY SAY, NAGS THAT FUTURES UP BY 1.4%. ANNA: THINGS LOOKING A LITTLE BIT CALM HER THAN THEY HAVE OF LATE IN EUROPEAN BOND MARKETS JUST AS THEY DO IN TREASURIES. THAT 24 YEAR HIGH ON 30 YEAR TREASURY YIELDS. THIS IS THE PICTURE ON EUROPEAN DEBT, WE ARE SEEING SOME SELLING, BUT VERY SMALL MOVES AT THE 10 YEAR HORIZON. NOT A HUGE AMOUNT OF MOVEMENT. I CAN NOTE THAT THE FRENCH SPREADS, 126.9. JON: LET'S STAY ON FRANCE BECAUSE THE FRENCH GOVERNMENT IS SET TO UNVEIL ITS DETAILS OF ITS 2027 BUDGET TODAY WITH THE FOCUS ON SHARPLY NARROWING THE NATIONAL DEFICIT. RISING DEBT SERVICING COSTS AND PRESSURE FROM BRUSSELS TO PUT PUBLIC FINANCES ON A MORE SUSTAINABLE PATH. WHAT CAN WE EXPECT? THIS IS THE LAST BUDGET UNDER PRESIDENT MACRON. WHAT ARE WE EXPECTING THE PRIME MINISTER TO PUT FORWARD? >> WE HAD THE PRIME MINISTER PUTTING ON X LAST NIGHT SAYING REALITY IS CATCHING UP WITH US. AS YOU CAN SEE WITH THIS SPREAD BETWEEN THE FRENCH AND THE GERMAN 10-YEAR, CLEARLY, TODAY WHAT WE ARE EXPECTING, WE'VE ALREADY GOT SOME NUMBERS IN THE FRENCH PRESS. HE IS SAYING 54 BILLION EUROS OF EFFORT, THAT IS WHAT HE'S TARGETING FOR THIS LAST BUDGET UNDER PRESIDENT MACRON. IT'S GOING TO BE A MIX OF NEW TAXES AND SAVINGS, ESPECIALLY THIS EXCEPTIONAL TAX. WELL, NOT SO EXCEPTIONAL AFTER ALL. IT WAS EXTENDED LAST YEAR, PROBABLY GOING TO BE EXTENDED AGAIN THIS YEAR ALTHOUGH IT MIGHT BE SMALLER TO JUST 5 BILLION EUROS COMPARED TO NEARLY 8 BILLION LAST YEAR. THE GOVERNMENT IS ALSO GOING TO ASK MORE EFFORT FROM PENSIONERS WITH THIS VERY CONTROVERSIAL MEASURE POSSIBLY TO STOP INDEXING THE HIGHEST PENSIONS ON INFLATION AND TO REMOVE A TAX ALLOWANCE FOR PENSIONERS. OBVIOUSLY, THESE MEASURES ARE VERY CONTROVERSIAL, SOMETHING THEY'VE BEEN VERY MUCH AGAINST IN THE PAST. FINALLY, THE SOCIAL SECURITY BUDGET. THE GOVERNMENT IS PLANNING TO CUT THE DEFICIT OF THE SOCIAL SECURITY BY ALMOST HALF NEXT YEAR. OBVIOUSLY THAT HAS ALSO BROUGHT A LOT OF DEBATE IN THIS FRAGMENTED PARLIAMENT THAT WE STILL HAVE IN FRANCE AND LAST BUT NOT LEAST, TODAY THERE IS A REGULAR BOND AUCTION ACTUALLY WHICH IS SCHEDULED AT 10:00 A.M. U.K. TIME, ABOUT THE TIME WE WILL HAVE THE DETAILS OF THIS NEXT BUDGET. THE GOAL IS TO ISSUE ABOUT 12 BILLION EUROS OF LONG MATURITIES, 10 YEAR AND 20 YEAR, AND THAT IS CLEARLY SEEN AS ONE OF THE KEY TESTS IN THE CURRENT BOND MARKET SITUATION IN FRANCE. TOM: THANK YOU VERY MUCH, INDEED. THAT PREVIEW OF AN IMPORTANT DAY WITH THE BUDGET AND FOCUS IN FRANCE. MORE ON WHAT TO EXPECT FROM THAT BUDGET, WITH BRING IN OUR CHIEF INVESTMENT OFFICER, CIO FOR FRANCE. HOW CHALLENGING A MOMENT IS THIS FOR FRANCE AND FOR THE DEBT MARKET? >> I THINK WE HAVE A SEASONALITY , WE WILL SEE THE SPREAD WIDENING IN 2024 AND 2025 AND 2026 STILL THE SAME. WE HAVE A FEW COMMENTS THIS MORNING PRESENTING THE BUDGET IN THE GOVERNMENT, SO THERE IS ALREADY A PREANNOUNCEMENT OF ABOUT 44 BILLION OF CUTS. SO THE EFFORT IS PRETTY BIG. THE MARKET IS REPRESSING QUITE A LOT. THERE IS ALSO A BIG CONTINGENT COMING FROM THE OTHER MOVEMENT. IT IS NOT ONLY FRENCH-SPECIFIC BECAUSE THE SPREADS ARE ALSO WIDENING ON ITALIAN BONDS. OF COURSE, THERE IS A BIT MORE VOLATILITY ON THE FRENCH ONE BECAUSE WE KNOW TO PASS THE BUDGET THIS YEAR, BUT OVERALL, I THINK THAT THE MARKET HAS ALREADY PRICED QUITE A LOT OF NEGATIVE ELEMENTS WE MAY PROBABLY SEE IN THE COMING WEEKS. >> WITH A SPREAD OF ABOUT 127, CLOSE TO 1.3%, IS THAT A MARKET THAT IS PRICING IN A BUDGET THAT FAILS AND A DEFICIT THAT GETS CLOSER TO 6% NEXT YEAR? >> I THINK AT THIS POINT IT IS ALREADY PRICED, BUT IT IS NOT SUSTAINABLE. WHEN YOU COMPARE THE SPREAD BETWEEN THE ITALIAN BOND IN THE FRENCH TO THE GERMAN ONE, THEN YOU REALIZE THAT THIS SPREAD, FRIANT IS ALREADY TRADING ABOVE ITALY BY 20 POINTS. THIS CREDIT DOWNGRADE, THE MARKET IS PRICING THAT 54 BILLION WILL NOT PATH. PROBABLY WE AND SOMETHING ABOUT 35 BILLION. BUT THE MARKET IS ALSO REPRESSING THE RISK WITH THE COMING ELECTION. NEXT YEAR WE HAVE PRESIDENTIAL ELECTIONS, BUT WE ALSO HAVE A GENERAL ELECTION WHICH IS PUTTING THE COUNTRY IN A SITUATION THAT WE NEED SOCIAL REFORM, WE NEED PENSION REFORM, WE NEED WORK REFORM. CLEARLY, THESE ARE REFORMS WHICH ARE NEEDED TO BRING THE DEBT TRANSITORY DOWN WHICH IS NOT POSSIBLE. >> IT SOUNDS LIKE EVEN IF WE GET THIS PAST, IT MAY NOT WAY DOWN SPREADS ALL THAT MUCH. WE ARE LOOKING AT UNDERPERFORMANCE IN THE FRENCH MARKET BUT SOME OF THAT IS LUXURY NAMES AND SOME OF THAT IF THE CHINESE CONSUMER, NOTHING TO DO WITH THE FRENCH ECONOMY. HOW DO YOU ATTACH THE FRENCH POLITICAL STORY TO WHAT YOU ARE SEEING IN FRENCH STOCKS? >> I THINK AS AN EQUITY MARKET WE'VE BEEN LESS IMPACTED DEPENDING ON THE OUTCOME OF THE ELECTION. BUT MOSTLY THE EQUITY IN FRANCE HAS BEEN IMPACTED BY THE POSITION WHICH IS MOSTLY CONSUMER NAMES WHICH HAVE BEEN IMPACTED BY THE RISE IN ENERGY PRICE, BUT ALSO BY THE WEAKNESS IN CONSUMER DEMAND COMING FROM ASIA. AND THEN YOU HAVE BIG TECH NAMES. CLEARLY THIS IS ALSO IMPACTING THE PERFORMANCE. WE HAVE I THINK A DIFFERENT COMPOSITION RELATIVE TO THE EURO STOCKS. THAT DOES NOT MEAN THAT THE EQUITY MARKET IN FRANCE WILL NOT BE IMPACTED BECAUSE THERE WILL BE AN INCREASE IN TAXES ON COMPANIES WITH BIG MARKET CAP. BUT THIS IS OUR MOST ALREADY CONSIDERED BY THE MARKET BECAUSE IT IS NOT NEW. THERE IS NOTHING NEW ADDITIONAL ON THE COMPANY SIDE SO FAR. ANNA: DOES IT STRIKE YOU AS INTERESTING THAT WE HAVE SPREADS AT THESE LEVELS THAT WE HAVEN'T SEEN FOR MANY YEARS DESPITE THE FACT THAT MARINE LE PEN IS SOUNDING AS IF SHE IS LISTENING TO WHERE THE MESSAGES ARE COMING THROUGH FROM THE BOND MARKET AND ADJUSTING HER POLICIES ACCORDINGLY? THAT DOESN'T SEEM TO BE OFFERING MUCH COMFORT. WHAT DO YOU PUT THAT DOWN TO? >> I THINK BECAUSE UNCERTAINTY IS JUST RIGHT AND WE DON'T REALLY KNOW YET THE DIFFERENT FISCAL PROBLEM. WE ONLY HAVE THE EXTREME LEFT WHICH PROBABLY COULD PUT ADDITIONAL PRESSURE ON THE SPREAD, BUT ON THE OTHER SIDE, CLEARLY PEOPLE ARE STILL EXPECTING TO SEE WHICH OF THE PROGRAMS IN THE COMING MONTH. ALL THE PARTIES WILL ANNOUNCE, BUT THE BIG DISCUSSION TODAY IS AROUND REFORM. WE ARE STILL DISCUSSING RETIREMENT AGE WHICH IS THE LOWEST IN EUROPE. ITALY JUST INCREASED RETIREMENT AGE BY SIX MONTHS. CLEARLY, I THINK THE DISCUSSIONS ARE NOT ENOUGH TO PUT DE-RISK SPREAD ON THE DOWNWARD TREND SO FAR. AGAIN, I THINK THERE IS A VERY SHORT BOND IN FRANCE WITH SPREADS THAT ARE PRETTY LARGE. PROBABLY LESS VOLATILITY AFTER THE ANNOUNCEMENT. I STILL BELIEVE THAT THIS BUDGET WILL PASS. THERE ARE DIFFERENT WAYS TO PASS THE BUDGET FOR FRANCE. FRANCE NEEDS TO PASS AND THEN OPEN THE DISCUSSION FOR THE PRESIDENTIAL ELECTION NEXT YEAR. THAT IS ANOTHER STORY. FOR THE TIME BEING, THE LOWER VOLATILITY IS FOR THE BUDGET DISCUSSION. GUY: WE ARE GOING TO LOOK FORWARD TO THAT ELECTION COMING UP. WHEN DOES IT BECOME A CRISIS, 100 30 OVER GERMANY, 140 OVER GERMANY, 150 OVER GERMANY? AT SOME POINT DOES EUROPE'S DEBT IN TO FIX THIS? AND WHAT WOULD THAT LOOK LIKE? >> I WAS THINKING A FEW MONTHS AGO THAT 120 WAS ALREADY A HIGH LEVEL OF SPREAD. I WASN'T EXPECTING 127. SO I THINK THERE IS NO LIMIT DEPENDING ON WHAT IS GOING ON IN THE COMING 10 MONTHS. IT'S REALLY, REALLY IMPORTANT WHERE THE CANDIDATES ARE PROPOSING FOCUSING ON THE DEBT PREDATORY. WE ARE EXPECTING IT TO INCREASE AGAIN BY 2030 AND WITH THE MARKET IS PRICING IS THIS SCENARIO. GUY: SO IF YOU ARE BUYING FRANCE AT THIS POINT -- ACTUALLY, LET ME PUT IT THE OTHER WAY. IF YOU ARE SELLING FRANCE AT THIS POINT, HOW BIG A RISK IS THERE THAT SOMETHING TAKES YOU THE OTHER WAY, THAT YOU DO GET A BUDGET PASSING, THAT YOU DO GET A MORE BENIGN OUTCOME IN THE ELECTION OR YOU DO GET, DARE I SAY IT, MAYBE SOME CONDITIONALITY BEING IMPOSED FROM BRUSSELS, FROM THE REST OF EUROPE? WHAT IS TO STOP ME HAVING A SHORT POSITION ON RIGHT NOW IN FRENCH DEBT? >> I THINK TAKING THE RISK OF SHORTING FRENCH DEBT 127 BASIS POINTS IS HIGH. THIS IS BECAUSE FOR ME, THE BUDGET WILL PASS. THERE ARE SOME RISKS, AND PROBABLY WHERE THERE IS MORE TENSION ON THE SPREAD. SO BETWEEN THE 18TH OF APRIL AND THE SECOND OF MAY. BUT BY THE END OF THE YEAR I SEE THE SPREAD TO BE LOWER. ALSO BECAUSE I THINK THERE IS A BIT OF CONTENTION COMING FROM BONDS. THEN I HAVE TO SAY, OPPORTUNITIES ARE THERE. FRANCE IS NOT DEFAULTING, SO IF YOU'RE CARRYING YOUR BOMBS TO MATURITY, I THINK THE BOND IS QUITE ATTRACTIVE. GUY: ON THAT NOTE, PERFECT POINT TO LEAVE IT. COMING UP, NETFLIX'S CHIEF WANTS TO GET BIGGER QUICKER. >> OVERALL, WE ARE NOT GROWING AS FAST AS I WANT US TO. WE ARE ALSO DOING THINGS THAT CREATE A LOT OF HEADWIND. AND WE DO LIVE PROGRAMMING ON NETFLIX WHICH IS A RELATIVELY NEW THING, WE SPEND ABOUT 5% OF OUR CONTENT BUDGET ON LIVE EVENTS. THEY GENERATE ABOUT 1% OF OUR WATCHING. GUY: LIFE TV IS GOOD. THAT WAS THE NETFLIX CO-CEO SPEAKING EXCLUSIVELY AT THE BLOOMBERG SCREEN TIME CONFERENCE TAKING PLACE IN LOS ANGELES. UP NEXT, STOCKS TO WATCH, TECH FIRMLY IN FOCUS THIS MORNING. THE OPENING IS COMING. 16 MINUTES TO GO. THIS IS BLOOMBERG. GUY: THURSDAY MORNING. EUROPEAN EQUITIES ARE NOT GOING TO OPEN ON THE FRONT FOOT. 7, 8, 9/10 OF 1%. FEELS LIKE A YESTERDAY STORY REACTING TO THE SELLOFF WE SAW AT THE BACK END OF YESTERDAY'S SESSION. THEY ARE OFF THE EARLIER HIGHS, BUT STILL UP BY 1.1%. ANNA: WITH MARKET FLAG EXECUTIVE EDITOR MARK CUDMORE. GOOD MORNING TO YOU. DON'T LOOK AT EUROPEAN FUTURES, LOOK AT U.S. FUTURES. AND MUCH MORE POSITIVE STORY, AND I KNOW YOU WANT TO SEE A MUCH MORE POSITIVE STOCK STORY. IT'S OCTOBER, WHAT CHANGES? >> ONE OF THE THINGS I THINK WILL CHANGES THE DYNAMIC OF THE LAST MONTH OR TWO HAS BEEN A VERY STARK NEGATIVE CORRELATION BETWEEN STOCKS AND BONDS. AND GENERALLY I AM ALWAYS IN THAT CAMP THAT IF YIELDS ARE GOING UP HIGHER WHICH IS THEN THE DRIVER IN THE U.S., THAT IT SHOULD BE A MAJOR BUFFER FOR STOCKS. I HAVE BEEN BULLISH STOCKS. I'VE SAID THAT STOCKS BE RESILIENT TO HIGHER YIELDS. AND NOW THINK THAT THE MOVES ARE GOING SO EXTREME IN YIELDS THAT IF YIELDS CONTINUE TO CLIMB MUCH FURTHER, THAT WILL NO LONGER BE THE CASE THAT STOCKS STAY RESILIENT. I THINK WE ARE MOVING INTO A PARADIGM OF WHERE WE'VE SEEN RECENTLY, A VERY STRONG NEGATIVE CORRELATION BETWEEN STOCKS AND BONDS, SOVEREIGN BONDS. NOW, ID ON'T HAVE HIGH CONVICTION ON WHICH WAY THAT COULD GO. COULD BE THAT BONDS ARE SELLING OFF OF STOCKS CONTINUED TO DO WELL. I WILL TELL YOU WHY I'M CHANGING MY VIEW A LITTLE BIT NOW. OR IT COULD BE THAT I'M MOVING A LITTLE BIT MORE INTO THAT NERVOUS CAMP THAT THEY BOTH WEAKEN. TWO THINGS. ONE, THE PACE OF THE MOVE IS REALLY QUITE DRASTIC AND I THINK THE DYNAMIC IN THE U.S. IS EXACERBATING THE HEDGING, THE MORTGAGE-BACKED SECURITY SYSTEM. AND THEN WE'VE GOT THE WHOLE FRENCH SITUATION. MAYBE THAT'S WHY THIS IS THE EXTREME AND WHETHER BOTH STOCKS AND BONDS RALLY OR SELLOFF, I LEANED INTO THE FACT THAT WE GOT A BIT MORE PAIN FOR BOTH ASSETS AHEAD RATHER THAN STOCKS STAYING RESILIENT. GUY: LET'S EXPLORE FRANCE A LITTLE BIT MORE. YOUR FRENCH IS PRETTY GOOD. WHAT IS A CRISIS IN THE FRENCH BOND MARKET LOOKING LIKE, IS THIS IT, OR DOES IT GET WORSE? MARK: WE ARE NOT A CRISIS. THE FACT IS WE ARE TALKING ABOUT TREASURIES. ONCE WE'RE IS WE ARE GETTING TO LEVELS THAT WE ONLY REALLY SAW IN THE EURO ZONE CRISIS. AND YET THERE HASN'T BEEN THAT PANIC YET. I KIND OF THINK IT IS A NEWS FLOW STORY. THE PROBLEM WITH THIS TRAIT IS THE TIMING. THE PRESIDENTIAL ELECTIONS ARE NEXT YEAR. IT'S VERY, VERY HARD TO HOLD IT ON SUCH A NEGATIVE CARRY WHEN THESE PONDS ARE OFFERING SUCH YIELDS. I'M REALLY OPEN TO THE IDEA THAT THE BUDGET HAS A BREAKING POINT BUT I DON'T KNOW WITH HIGH CONVICTION. IN GOING TO BE OPEN-MINDED AS THAT STORY PLAYS OUT THAT IT IS A VERY EXCITING MOMENT BECAUSE IT IS A TIPPING POINT EITHER WAY. TOM: ARE WE THINKING ABOUT SYSTEMIC RISKS, POTENTIALLY, FROM THIS? MARK: I THINK IF FRANCE BONDS SELLOFF FURTHER FROM HERE, YES. THAT'S WHY THERE IS A CORRELATION FROM STOCKS AND BONDS. IF FRENCH BOND KEEP ON FILLING OFF FROM HERE IT IS GOING TO FEED INTO STOCK MARKETS AND WE ARE GOING TO SEE THE EURO-DOLLAR DROP HARD AS WELL. TOM: MARK CUDMORE, THANK YOU. YOU CAN GET UP-TO-DATE ANALYSIS AND INSIGHT FROM MARK AND THE REST OF THE TEAM BY GOING TO MLIV GO ON YOUR TERMINAL. ALEX, WHAT ARE YOU LOOKING AT? >> OUR FIRST STOCKS TO WATCH OF THE QUARTER, STARTING WITH TECH STOCKS. THE STORY HERE IS COMING UP THE BACK OF MICRON'S UPBEAT FORECAST. YOU'RE ALREADY SEEING IT PLAY OUT IN ASIA, THE IDEA OF A RISING TIDE LIFTING ALL SHIPS. TALKING ABOUT DEMAND TIGHTENING IF ANYTHING GOING FORWARD. FOR EUROPEAN CHIP STOCKS, THAT OF COURSE IS SIGNALING MULTIYEAR DEMAND, SUSTAINED DEMAND AND PERHAPS LOOKING TO DOWNPLAY THOSE FEARS IN A CYCLE THAT COULD BE A POTENTIAL PART OF THE AI BUILDOUT FRENZY. SO KEEP YOUR EYES, WE ARE ALREADY SEEING STOCKS LIKE ASML UP IN PREMARKET TRADE. KEEP AN EYE ON THE EUROPEAN CHIP AND TECH STOCKS THIS MORNING. LET'S TURN IT OVER TO SANOFI, WE HAD SOME NEWS THEY ARE EXPANDING THEIR PARTNERSHIP WITH REGENERON, THE U.S. PHARMACEUTICAL COMPANY HAVING WORKED ON SENOFI'S BLOCKBUSTER DRUG. THE EMPHASIS HERE IS LOOKING TO NEW ANTIBODY DRUGS, LOOKING AT THE IMMUNE SYSTEM IN THE YEARS AHEAD. YOU CAN SEE THEM REALLY QUITE A BIT BELOW, BUT THIS IS LOOKING TO THE FUTURE. LOOKING IN THAT PARTNERSHIP AND EXPANDING IT AT THE SIGNAL THEY HAVE THAT INTENTION TO DO SO. LET'S FINISH WITH PANDORA, GETTING A READ ON CONSUMER SENTIMENT PARTICULARLY IN THE UNITED STATES. TALKING ABOUT U.S. MARKETS AND WHAT WE ARE SEEING FROM LOWER TO MIDDLE INCOME CONSUMERS. SAYING THEY ARE CONFRONTED WITH RISING PRICES, RISING GAS PRICES AND THE UNCERTAINTY LINKED TO THE CONFLICT AROUND THE WORLD. BUT FOR PANDORA, THERE IS ACTUALLY AN INTERESTING SPLIT IF YOU LIKE BETWEEN MARKETS LIKE THE UNITED STATES AND ASIA. IN JAPAN ALONE, THEY'D HAD A HUGE GROWTH. SO YOU ARE SEEING PANDORA SIGNALING DEMAND IN THE U.S., THIS INFLATIONARY PRESSURE SQUEEZING CONSUMERS AND JAPAN. THEY ARE REALLY SEEING THAT UPLIFT. ALSO BEGIN TO READ FROM NIKE LATER, IT SENDS OF CONSUMER SENTIMENT THERE AS WELL. SOME OF THE STOCKS KICKING US OFF IN THE NEW QUARTER. ANNA: CALIX, THANKS VERY MUCH. ANOTHER TO THE LIST, FILTRONIC HAS GOT A CONTRACT FROM SPACEX, SO THAT IS ONE WE CAN WATCH AT THE OPEN. BROADLY SPEAKING AS YOU CAN SAYING, IT IS A WEIRD DAY FOR EUROPE. WE HAVE TO PRICE AND THE NEGATIVITY THAT CAME JUST IN THE LAST HOUR OF THE U.S. TRADING DAY BEFORE WE CAN PERHAPS GET ON THE BANDWAGON WITH A HIGHER U.S. FUTURES PICTURE. GUY: TECH IS GOING TO BE REALLY INTERESTING THIS MORNING. WE'VE ALSO GOT A MECHANICAL SHIFT LOWER, A FACTOR MAYBE FOR SOME OF THE OTHER NAMES THAT HAVE DONE THE WELL RECENTLY. FTSE LOOKS LIKE IT IS GOING TO UNDERPERFORM. TOM: THAT MECHANICAL FUNCTION AROUND OIL, DOES IT GIVE A LIFT TO TRAVEL AND LEISURE? MAYBE LESS, MAYBE A LITTLE MORE MUTED? WE ARE BACK BELOW 00, SO POSSIBLY THERE IS A READ ACROSS FOR TRAVEL AND LEISURE AS WELL. ANNA: THE BOND MARKET STORY IS NOT MAKING THINGS MASSIVELY WORSE FOR STOCKS BUT WE ARE UP BY TWO BASIS POINTS ON THE FRENCH STORY. JUST SORT OF WATCHING AND WAITING. GUY: 127 THIS MORNING. FIVE MINUTES TO GO UNTIL THE OPENING TRADE. WE WILL BE BACK WITH THAT IN JUST A MOMENT. THAT IS WHAT FUTURES LOOK LIKE. THIS IS BLOOMBERG. GUY: FIRST OF OCTOBER, GOOD MORNING. LET'S TALK ABOUT WITH THE S&P DID YESTERDAY BECAUSE IT'S RELEVANT TO WHAT WE ARE ABOUT TO SEE HERE THIS MORNING. IN THE LAST HOUR, AS YOU CAN SEE, WE TURN TAIL AND HEAD SHARPLY LOWER AND CLOSE OUT OF THOSE LOWS. THAT IS THE REASON. THERE ARE A FEW OTHERS, THAT IS THE MAIN REASON. TOM: LOOK AT THAT PICTURE ON THE FTSE 100 FUTURES POINTING SHARPLY LOWER BY 910'S OF 1%. THIS INDEX IS UP ABOUT 7%. ENERGY IS LOWER, EUROPEAN FUTURES ACROSS THE BENCHMARK, DOWN BY SIX TENS OF 1%. OVER IN GERMANY, THE DAX LOOKING TO DROP 200 POINTS, DOWN A 10TH OF 1%. ANNA: THAT'S KEEP AN I ON WHAT GOES ON WITH TECHNOLOGY. -- LET'S KEEP AN EYE ON WHAT GOES ON WITH TECHNOLOGY. NASDAQ FUTURES AS WE'VE BEEN SAYING HITTING HIGHER AS A RESULT, PERHAPS INFLUENCED BY THAT. THE WHOLE EUROPEAN SPACE IS SUPPOSED TO DRIFT LOWER. SONAFI IS AN INTERESTING ONE, SHARES RISING PREMARKET HEAD OF REGULATORY IN PARIS. THE COMPANY EXPANDING ITS PARTNERSHIP WITH THE U.S.-LISTED REGENERON, SO WHAT WILL THAT DO TO THE ANTIBODY DRUGS FOR DISEASES RELATED TO THE IMMUNE SYSTEM? AND PANDORA'S SEEING U.S. DEMAND STABILIZING. SO HOW WILL THE MARKET DEAL WITH THAT KIND OF MESSAGING? THE CONSUMER IN THE UNITED STATES GRAPPLING WITH INFLATION AND HIGHER GAS PRICES. THAT HAS BEEN WEIGHING ON DEMAND. GUY: TO POSITIVE STOCK STORY FROM TECH, EVERYTHING ELSE PRETTY NEGATIVE. WHAT ARE WE GOING TO SEE, LET'S FIND OUT. EUROPE IS EXPECTED TO OPEN SHARPLY TO THE DOWNSIDE. LET'S SEE HOW QUICKLY IT DROPS. STOXX 600 MAY BE DOWN BY HALF OF 1%. A MORE POSITIVE PICTURE EMERGING, POTENTIALLY THAT GAP THAT IS WHAT STOCKS LIKE ASML ARE EFFECTIVELY DOING. IF YOU ARE NOT FULLY PRICING IN THE FUTURES PICTURE, HERE YOU GO. I'M INTERESTED TO SEE THE OPEN THIS MORNING. THE AEX IS OUTPERFORMING, ONLY DOWN BY 3/10 OF 1%. THIS IS THE FTSE WHICH IS DOWN BY 1.1%. A BIG SPREAD BETWEEN THE FTSE AND THE AEX THIS MORNING. GOING TO BE INTERESTING TO SEE HOW DIVERGENT THIS MARKET IS, HOW DISPERSED THIS MARKET IS. TECH ON ONE HAND, MAYBE ENERGY STOCKS ON THE OTHER. CAC'S DOWN BY SIX TENS OF 1%. IBEX DOWN BY 7/10 OF 1%. AEX ONLY DOWN BY 3/10 OF 1%. TOM: ONE SECTOR IN POSITIVE TERRITORY RIGHT NOW IS THE TECH SECTOR. THERE IS THE MICRON STORY FILTERING THROUGH. EVERY OTHER SECTOR SO FAR IN NEGATIVE TERRITORY. BIGGEST LOSSES COMING THROUGH FOR PERSONAL CARE. FOOD AND BEVERAGE DOWN ABOUT 1.2%. EVERYTHING THE SECOND RIGHT NOW APART FROM TECH SEEING LOSSES. INDUSTRIAL GOODS IS A LITTLE BIT MORE MUTED. WE'VE BEEN EXPECTING THAT MAYBE THEY WOULD BE A POSITIVE PICTURE FOR TRAVEL AND LEISURE ON THE BACK OF WEAKER OIL PRICES BUT IN FACT, THAT TAKES US DOWN SEVEN TENS OF 1%. . ANNA: BUT HAVE A LOOK AT SOME OF THE MOVERS AND WHERE WE ARE ON SOME INDIVIDUAL NAMES. WE'VE BEEN WATCHING THE TECH SECTOR AND SOME OF THE INDIVIDUAL NAMES ARE HEADING HIGHER WITHIN THAT SECTOR, OF COURSE. AND SOME L IS AT 1.7%. SO NOW FEET -- SONALFI UP 3.3%. INFINEON ALSO DECENT POINTS CONTRIBUTOR. SO THERE IS THAT TECH THEME GOING ON. ON THE DOWNSIDE, SOME OF THE BANKS, SOME OF THE PHARMACEUTICALS COMPANIES HEADING LOWER. HSBC AND ASTRAZENECA PROVIDE THE BIGGEST DOWNSIDE PUSH AND THEY PLAY HEAVILY INTO THE FTSE 100'S UNDERPERFORMANCE TODAY. GUY: THREE BIGGEST POINTS DROPS ON THE STOXX 600, THAT IS THE FTSE 100. SHELL IS DOWN PRETTY SHARPLY IN TERMS OF THE POINTS. FTSE 100 DEFINITELY. ANNA: NATIONWIDE CAME OUT WITH SOME OTHER DETAILS AND MAYBE THAT IS PART OF THE STORY. GUY: THEY HAD A REALLY BIG BUDGET BOUNCE, MAYBE THAT IS BEGINNING TO UNWIND. ANNA: LET'S GET SOME PERSPECTIVE ON STOCKS AND OTHER ASSETS. REALLY NICE TO SPEAK TO YOU. THANKS FOR COMING INTO TALK TO US. YOU ARE LONG STOCKS HEADING INTO THE LAST QUARTER OF THE YEAR. U.S. FUTURES POINTING HIGHER. WHAT IS YOUR THESIS FOR THE REST OF THE YEAR? >> WE HAVE A MORE PRO-RISK STANCE WITH REGARDS TO EQUITIES. THIS IS UNDERPINNED BY VERY STRONG FUNDAMENTALS. WE'VE SEEN OVER THE PREVIOUS QUARTER DESPITE SOME HEADWINDS IN TERMS OF VALUATION, THE BACK OF THAT WAS DOWN TO EARNINGS GATE. HOWEVER, WE ARE ALSO FOCUSED ON THAT THERE ARE CERTAIN RISKS TO THE OUTLOOK AND WHERE WE FOCUS AT THE MOMENT IS TWO THINGS. FIRST ONE IN TERMS OF OUR EQUITY, AND ALSO DIVERSIFICATION. IF I LOOK AT THE VOLATILITY IN THE EQUITY MARKETS, WHAT WE'VE SEEN RECENTLY IS DIVERGENCE BETWEEN THE INDEX IN THE U.S. AND THE STOCK SPECIFIC VOLATILITY WHICH EFFECTIVELY SUPPORTS OUR APPROACH THAT WE TAKE FOR OUR POSITIONING. BUT ON THE OTHERS, WE DEPLOY ALSO SOME HEDGING IN TERMS OF PORTFOLIOS. ANNA: I'M SURE WE WILL GET TO THE HEDGING. I WONDER, ARE YOU CONCERNED ABOUT JUST HOW GOOD THE EARNINGS STORY WAS LAST QUARTER AND WHAT THAT DOES TO OUR EXPECTATIONS, WHETHER WE CAN RELIVE THAT KIND OF EXPERIENCE? PEOPLE ARE ASKING IF WE ARE IN SOME SORT OF PROFIT BUBBLE AND YOU WONDER HOW PROFIT BUBBLES END. CAN THEY GENTLY DEFLATE, OR IS IT MORE DRAMATIC? >> IF I LOOK JUST THREE MONTHS AHEAD, THERE ARE ALSO MORE TECHNICAL CATALYSTS THAT CAN SUPPORT THE EQUITY MARKET. HISTORICALLY WE'VE SEEN , WE'RE IN A YEAR FOR MIDTERM ELECTIONS. WE TEND TO SEE POSITIVE EQUITY MARKET RETURNS. ANNA: SO YOU ARE NOT TOO WORRIED ABOUT THE EARNINGS STORY DERAILING, THINGS WORSENING FOR SOME REASON. >> THERE ARE CERTAIN RISKS AND FOR US, ONE OF THE THINGS WE ARE MONITORING IS INTEREST RATES. IF WE LOOK AGAIN HISTORICALLY DURING PERIODS OF INTEREST RATE HITTING THE 5% MARK, WHAT HAPPENED TO EQUITY MARKET RETURNS OVER THE NEXT 12 MONTHS, THEN I THINK MULTIPLES IN THE S&P 500 ARE AROUND THE 21 TIMES MARK, WHICH MEANS THAT WE ARE NOT IN THE TERRITORY OF THAT TYPE OF ENVIRONMENT. HOWEVER, WE ARE NOT IN A SWEET SPOT YET. GUY: WHAT DEAL THE LEVEL TURNS YOU NEGATIVE, AT WHAT LEVEL DOES NOT BECOME A PROBLEM FOR EQUITIES? >> I THINK IT IS NOT ABOUT THE LEVEL OF YIELDS, IT'S ABOUT THE YIELD RATE PRICES. FOR EXAMPLE, I WOULD SEE IF YIELDS ARE DRIVEN THAT MAKES THAT GROWTH SUPPORTED, AND SUBSEQUENTLY THIS WOULD BE POSITIVE FOR EQUITY MARKETS. HOWEVER IF WE ARE MORE IN AN ENVIRONMENT OF A LATE CYCLE TYPE OF ENVIRONMENT WHEN WE SEE THE WIDENING AND YIELDS DRIVEN BY INFLATION RATES, THAT WOULD BE A CATALYST FOR US TO BECOME A LITTLE BIT MORE CAUTIOUS AS EQUITIES WOULD BE TIGHTEST DURING THAT TYPE OF ENVIRONMENT. TOM: IT IS THE TYPE OF UNDERPINNING TO THE YIELD MOVE, IT IS WHAT IS MOVING THAT HIGHER. WHAT IS YOUR LEVEL OF CONVICTION THAT MARGINS CAN HOLD UP AND THAT YOU COULD GET THE EARNINGS REPEATED IN THE FOLLOWING QUARTERS? >> I THINK IF WE LOOK EARNINGS GROWTH , FOR ME THE MAIN REASON IS WHAT IS HAPPENING IN THE CREDIT MARKET. TOM: IS THERE COMPLACENCY IN THE CREDIT MARKETS? >> WE DON'T YET SEE A RED FLAG FOR THE CREDIT MARKET. IT COULD BE THE CASE THEY CREDIT MARKETS ARE COMPLACENT. FOR US, WE MIGHT SEE PARTICULARLY OVER THE NEXT THREE MONTHS OF THE YEAR. WE ALSO ARE EXPECTING A LOT OF IPO'S. GUY: DO YOU THINK THAT'S GOING TO HAPPEN? THE BIG COMPANIES PULLING THE IPO OR DELAYING THE IPO? WHAT IS THE SIGNAL IN THAT? BECAUSE WHAT YOU ARE SEEING AT THE MOMENT IS QUITE A LOT OF EQUITY ISSUANCE. LOTS OF COMPANIES ISSUING EQUITY AS WELL. WITH GONE THROUGH YEARS OF BUYBACK, BUYBACK, BUYBACK. IF YOU GET THESE, IS THAT A POSITIVE OR A NEGATIVE THING? >> HISTORICALLY, WE'VE SEEN THAT KIND OF MARKET RETURNS DURING VERY HIGH ISSUANCE HAVE BEEN BROADLY SPEAKING MIXED. WHAT MATTERS I THINK IS WHAT HAPPENS AFTER THE IPO. WITH THOSE COMPANIES ARE ABLE TO DELIVER IN TERMS OF EARNINGS THAT ARE GOING TO BE PRICED IN AT THE IPO. FOR ME, IT IS MORE A 2027 STORY. BASED ON THE EARNINGS BACKDROP, THE OTHER SIDE OF THE STORY IS TALKING A LOT ABOUT INFLATION AT THE MOMENT. SEEING INFLATION RATES ALSO BECOMING QUITE HIGH. AND THERE, -- TOWARD YEAR-END. GUY: DO YOU THINK CORPORATIONS ARE GOING TO HAVE TO PAY MORE TAX? THE MOMENT YOU GOT CORPORATE MARKET REALLY FULL. DO YOU THINK TAXES ARE GOING TO GO HIGHER, AND WHAT IMPACT WOULD THAT HAVE ON THE EARNINGS STORY, PARTICULARLY IN THE UNITED STATES? >> THAT CAN BE A GOOD THING BECAUSE FRANCE OBVIOUSLY DOESN'T HAVE AS MANY PROBLEMS. THERE HAS TO BE SOME RESOLUTION. >>'S CORPORATE PAYING MORE TAXES A GOOD THING FOR THE EQUITY MARKET? >> ON THE OTHERS WHAT WE SEE ALSO IN EUROPE AT THE MOMENT IS KIND OF MORE SPENDING. FOR EUROPE, THE MAIN RISK AS THE CONSUMER. AS WE SEE PROTRACTED CONFLICT, WE SORT OF EXPECT SOMETHING HAS TO GIVE, SO THE CONSUMER IS NOT GOING TO BE QUITE SUPPORTED DURING A HIGH INFLATION ENVIRONMENT. GUY: CERTAINLY FEELS LIKE THAT RIGHT NOW. ANNA: TALKING OF IPO'S AS WE JUST WORK. AIRTEL MOBILE COMMERCE, IT IS GOING TO LIST IN LONDON. IT HAS ANNOUNCED PLANS FOR ITS IPO. IT'S GOING TO START CONDITIONAL TRADING ON OCTOBER 9. IN MARKET CAP OF 5.3 BILLION. IT IS LOWER THAN SOME OF THE HIGHEST NUMBERS WE'VE BEEN TALKING ABOUT. OUR REPORTING SUGGESTING THIS IS STILL SOMETHING OF A WIN FOR LONDON, BUT THE DEAL IS EXPECTED TO RAISE $800 MILLION WHICH IS ABOUT HALF OF WHAT THE FIRM TARGETED EARLIER ON IN THE YEAR, SO EXPECTATIONS HAVE TO SHIFT A LITTLE BIT ON THAT ONE. GUY: YOU'RE CERTAINLY SEEING SOME POSITIVE PERFORMANCES COMING THROUGH FROM THE TECH SECTOR. ASML IS THE STANDOUT STORY THIS MORNING, UP BY 1.5% ON THE BACK OF THE MICRON STORY. SCHNEIDER IS A BENEFICIARY OF THAT DEFENSE. ELSEWHERE, THERE IS QUITE A LOT OF RED ELSEWHERE. RHEINMETALL NOW TURNS DOWN. NESTLE IS DOWN BY 1%, A LITTLE SHY OF THAT. LET'S START WITH THE TECH SPACE, THE POSITIVE NEWS THIS MORNING. >> THE TECH SECTOR REALLY BENEFITING FROM THAT POSITIVE WIND BLOWING THROUGH ACROSS ASIA. NOW INTO EUROPEAN TECH STOCKS. SOY TECH UP AROUND 3%. THE QUESTION WAS GOING TO BE HOW MUCH OF THE GOOD NEWS AND THE GOOD SENTIMENT ABOUT CHIP DEMAND WAS ALREADY GOING TO BE BUILT IN? WE ARE SEEING THAT NOW COMING ACROSS FROM THE EUROPEAN CHIPMAKERS AND CHIP-ALIGNED NAMES. TECH REALLY LEADING THE CHARGE THIS MORNING. THE NEWS WEALTH -- WITH SONAFI WAS AN EXTENDED PARTNERSHIP WITH REGENERON. ANOTHER BIT OF WHY THIS IS SIGNIFICANT IS THE PATENT IS UP FOR THEIR PRIMARY DRUG WHICH THEY DEVELOP WITH REGENERON. THIS NOW IS LOOKING AHEAD TO THE FUTURE. IT'S GOOD NEWS FOR THEIR FUTURE PIPELINE FOR NEW ANTIBODY DRUG FOCUSED ON THE IMMUNE SYSTEM. LET'S TURN OVER TO LOOK AT SUPERMARKETS AND SOME OF THE PRESSURES WE ARE SEEING THERE. WE CAN FLIP OVER THE BOARD, THEY ARE DOWN AROUND 9% AFTER A CUT FROM JP MORGAN. THE PRESSURE DOWN AND IN THE RED. THE CEO AT THE OPENING OF THAT NEW PLANT IN VIETNAM, LOW TO MIDDLE INCOME FEELING THE SQUEEZE, FEELING THE PRESSURE FROM INFLATION. OF COURSE FROM CONFLICT AROUND THE WORLD FEEDING INTO THAT. DOWN AROUND 4% THIS MORNING. PANDORA DO HAVE THIS SPLIT STORY, THEY ARE DOING VERY WELL THAT THEY HAVE BEEN TALKING ABOUT THE CHALLENGES AND THIS STABILIZATION AT A LOWER LEVEL IN THE U.S. MARKET. A SENSE OF THAT CONSUMER DEMAND BEING DAMPENED BY THOSE INFLATION CONCERNS. PANDORA DOWN THIS MORNING. TOM: THANK YOU. COMING UP ON THE SHOW, PASSENGERS AND CREW PREVENT DISASTER AFTER SUBDUING A PILOT WHO TRIED TO CRASH A PLANE TRAVELING FROM DUBAI TO TEL AVIV. MORE ON THAT DRAMATIC STORY, NEXT. THIS IS BLOOMBERG. ANNA: WE ARE 18 MINUTES INTO A SESSION IS PRETTY NEGATIVE FOR EUROPEAN EQUITIES. PRICING AND THE NEGATIVITY OVER IN THE STATE IN THE LAST HOUR OF THE U.S. TRADING DAY YESTERDAY, SO THAT IS PART OF THE STORY HERE. U.S. FUTURES PULLING BACK A LITTLE BIT FROM THE EARLIER EXUBERANCE. NASDAQ FUTURES ARE STILL UP, BUT ONLY A 10TH OF 1% VERSUS EARLIER. TOM: AND THE GAINS HAVE FADED TO SOME EXTENT AS WELL. INFINEON IS UP 2%. ASML UP 1.7%, NOW JUST 9/10 OF 1%. SO THERE IS THAT READ ACROSS BUT IT IS LESS PRONOUNCED THAN IT WAS 18 MINUTES AGO. STILL HOLDING ONTO DECENT GAINS AFTER MICRON GAVE AN UPBEAT FORECAST FOR THE CURRENT QUARTER, FUELED BY THAT AI DEMAND PICTURE. REVENUES THE PROFITS PER SHARE. LET'S BRING IN BLOOMBERG EQUITY STRATEGIST. IT WAS A BLOWOUT QUARTER TO SOME EXTENT FOR MICRON AND THE CURRENT QUARTER LOOKS STRONG AS WELL. CAN WE EXPECT THIS TO BE SUSTAINED FOR MICRON? >> IT'S A VERY STRONG QUARTER, BUT WE KNEW THAT WAS GOING TO BE THE CASE. THEY HAVE A HABIT OF BEATING QUITE HANDSOMELY ON THE TOP AND BOTTOM LINE. I THINK THE ONLY BLEMISH WAS AROUND GROSS MARGINS. SLIGHTLY BELOW WHAT THE STREET WAS EXPECTING. THAT IS STILL REALLY HIGH AND FLEX THE PRICE AND POWER THAT THEY HAVE. THE OTHER THING THAT STOOD OUT TO ME WAS STRATEGIC CUSTOMER AGREEMENTS THAT THEY ANNOUNCED. THAT POTENTIALLY PUTS A FLOOR -- TOM: SCA MEANING? >> -- THE BIG QUESTION IS THIS A CYCLICAL STOCK OR CAN THEY EXPEND THIS KIND? GUY: DID YESTERDAY'S RESULTS HELP US ANSWER THAT QUESTION OR DOES THAT SUSTAINABILITY QUESTIONS STILL REMAIN? >> IT DID BECAUSE THEY CONTINUE TO SUGGEST THAT WOULD PERSIST THROUGH FY 27 AND FY 28 WHICH MEANS THE INDUSTRY IS GOING TO CONTINUE TO BE VERY FAVORABLE. BUT GOLDMAN SACHS OUT WITH A NOTE THIS MORNING INTERESTINGLY SUGGESTING AT SOME POINT SUPPLY IS GOING TO LOOSEN, THEY ARE INVESTING VERY HEAVILY IN CAPEX AND THEY ARE GOING TO GET MORE MEMORY CHIPS TO THE MARKET. I THINK THAT IS THE RISK INCREASING OVER INVESTORS. THIS MISMATCH WAS AN EXPECTATION. GUY: THANK YOU VERY MUCH, INDEED. LET'S TURN TO THE BIG STORY OF YESTERDAY, PASSENGERS AND CREW ARE BEING HAILED AS HEROES AFTER SUBDUING A PILOT TRIED TO CRASH THE PLANE TRAVELING FROM DUBAI TO TEL AVIV. THE JET WAS CARRYING MORE THAN 100 SEVEN PASSENGERS WHEN ONE OF THE PILOTS STABBED HIS COPILOT. BENJAMIN NETANYAHU HAS DESCRIBED IT AS A SERIOUS SECURITY INCIDENT AND INVESTIGATION IS CURRENTLY UNDERWAY. WE ARE JOINED NOW BY GLOBAL AVIATION LEADER BENEDICT. JUST UPDATE US ON THE LATEST ON THIS STORY BECAUSE PIECES ARE NOW BEING PUT INTO PLACE FOR US TO GAIN A GREATER UNDERSTANDING. WE SAW A NOTE -- WE STILL DON'T KNOW ABOUT THE MOTIVE OF THIS, WE STILL DON'T KNOW WHAT OCCURRED. WHAT DO WE KNOW AND WHAT DO WE NEED TO KNOW? >> WE KNOW A LITTLE BIT MORE ABOUT THE DRAMA THAT UNFOLDED YESTERDAY. WE KNOW THAT THE COPILOT STABBED HIS COLLEAGUE IN THE COCKPIT. EVEN THOUGH WE KNOW THINK IT WAS IN ACTS THAT -- AXE THAT HE USED, THERE IS AN AXE STORED IN THE COCKPIT FOR SAFETY MEASURES SO WE THINK THAT MIGHT HAVE BEEN THE WEAPON. AND WHAT WOULD THAT TELL US ABOUT POSSIBLE SCREENING OR LACK THEREOF? SO WE THINK IT WAS THE ACT THAT WAS USED. WE ALSO KNOW THE PILOT SEEMED TO HAVE HAD THE POWER, THE FINAL COURAGE TO OPEN THE DOOR AND LET OTHERS IN. PASSENGERS RUSHED TO THE FRONT OF THE PLANE. A RESERVE CREW THAT HAPPENED TO BE ON THE PLANE ALSO CAME TO THE FRONT END MANAGED TO STABILIZE THE AIRCRAFT. THIS COULD OBVIOUSLY HAVE ENDED IN DRAMATIC CATASTROPHE AND IT DIDN'T, EVERYBODY GOT OFF THE PLANE SAFELY. OBVIOUSLY SOME OF THE QUESTIONS THAT REMAIN ARE WHAT WITH THE MOTIVE BEHIND THIS? WE DON'T KNOW THE IDENTITY OR THE NATIONALITY OF THE ATTACKING PILOT. THAT'S GOING TO BE AN IMPORTANT LINE OF INQUIRY. SOMETHING OVERLOOKED, WITH THIS SOMEBODY ACTING AS A SORT OF LONE WOLF, DID HE HAVE PEOPLE BEHIND HIM PLANNING THIS? WAS THIS A 9/11-TYPE ATTACK? THOSE ARE THE TYPES OF THINGS WE DON'T KNOW ABOUT AT THIS POINT. ANNA: AND WHAT KIND OF RESPONSE HAVE BE SEEN FROM THE ED ASIAN INDUSTRY? THE INDUSTRY WANTS ANSWERS TO MANY OF THE QUESTIONS YOU BEEN HIGHLIGHTING, BUT SOME ARE TAKING A FEW PRECAUTIONS IN THE SHORT TERM. >> THE SHORT-TERM PRECAUTION IS THAT THEY'VE SUSPENDED THIS ROUTE, THE DUBAI-TEL AVIV AROUND AND THEY SAY THEY ARE DOING SO SO THAT THE INVESTIGATION CAN UNFOLD AT PACE. SO THAT HAS HAPPENED. WE DON'T YET KNOW WHAT THIS WILL MEAN FOR THE WIDER AVIATION SECTOR. OBVIOUSLY, THIS IS AN INDUSTRY THAT HAS BEEN THROWN INTO TURMOIL IN THE REGION OVER THE PAST 6, 7 MONTHS AFTER THE START OF THE IRAN WE KNOW THAT COMPANIES LIKE EMIRATES, LIKE QATAR REALLY GRAPPLED WITH THE FALLOUT BUT THEY HAVE COME BACK. IS THIS GOING TO SABOTAGE ALL THE GAINS THAT THEY HAD OVER THE LAST COUPLE OF MONTHS? WILL PEOPLE HAVE SECOND GUESSES AGAIN ABOUT GETTING ON A PLANE IN THE REGION, TRAVELING THROUGH THE REGION? IT IS TOO SOON TO SAY AT THIS POINT, BUT CERTAINLY SOMETHING WE WILL WATCH VERY CLOSELY. TOM: OK, THANK YOU INDEED. THIS GET BACK TO WHAT IS HAPPENING ON THE BOND MARKETS BECAUSE THE SELLOFF IS BACK AND YOU ARE SEEING THAT ACROSS EUROPE, SEEING THAT IN THE U.S. AS WELL. THE 30 YEAR BOND YIELD CLIMBING TO 6% FOR THE FIRST TIME SINCE 1998. THE U.S. 10 YEAR YIELD RISING TO 5.33%, THE HIGHEST SINCE 2002. SEEING A SELLOFF IN FRANCE AND ITALY, THE BOMB SELLOFF IS HERE. HISTORIC LEVELS IN TERMS OF YIELDS OF, PRICE DOWN. ANNA: IT MAY BE OCTOBER BUT THAT DOESN'T SEEMED TO HAVE CHANGE THE CONVERSATION AROUND BONDS AT ALL. FRANCE IS THE PLACE WE WATCHED TODAY. UP BY SIX BASIS POINTS ON THE 30 YEAR IN FRANCE, MORE THAN THAT ON THE 10 YEAR, AND THAT SPREAD CONTINUES TO WIDEN. GUY: THAT'S AMAZING. YESTERDAY WE WERE SURPRISED WE GOT THROUGH TO 125. AND THEN WE ARE ALREADY AT 130. ANNA: AND IS IT A POINT OR IS IT A PACE? BECAUSE THAT SEEMS TO BE EXACTLY IS IMPORTANT. TOM: WE CAME INTO THE SESSION LOOKING AT OIL PRICES BEING RELATIVELY BENIGN. OIL PRICES NOW UP 1.7%, SO YOU ARE CLOSING BACK IN ON 00 A BARREL ON BRENT. >> WE'VE HAD THAT AS WELL THAT PUSHED US LOWER, BUT WE ARE NOW PUSHING THAT DEBT CONTRACT BACKUP OVER 100. >> AND WE GOT U.S. 10 YEAR YIELDS AT 5.3%, THE HIGHEST SINCE 2002. SO IT SEEMS LIKE ONLY YESTERDAY IT WASN'T, BUT IT WAS NOT LONG AGO WE WERE TALKING ABOUT GOING OVER 5%. NOW WE ARE MARCHING THROUGH, AT A PRETTY QUICK CLIP. THAT IS THE ONLY ONE OF THE MAJOR ONES THAT HAS NOT BEEN THROUGH THE 5% MARKET BUT WE WATCH THAT ON THE EIGHT BASIS POINTS. TOM: AT THE FRONT END, THAT CITED OF A BID YESTERDAY ON INFLATION DATA. 5.6%, SO 6% IS STILL IN FOCUS. STILL CERTAINLY POSSIBLE THIS YEAR IF THIS TRAJECTORY CONTINUES. GUY: IF YOU ARE A PORTFOLIO MANAGER, DO YOU SELL BEFORE SOMEBODY ELSE DOES? AND I'M WORRIED ABOUT HOW THE MARKET IS MOVING HERE, BECAUSE THAT BECOMES REINFORCEMENT. TOM: WE ARE SPEAKING TO SKYLER LATER ON, SHE'S GOT THINGS TO SAY TO INCREASE THE VOLATILITY. >> MULTIPLE FACTORS IN THE SELLOFF. THE COMPETITION IS CERTAINLY PART OF THAT. WE ARE GOING TO BE SPEAKING THE CEO OF SWEDISH LEGAL AI FIRM LE GORA. DON'T MISS THAT CONVERSATION. THAT'S NEXT. THIS IS BLOOMBERG. TOM: THIS IS "THE OPENING TRADE." A PRONOUNCED SELLOFF ACROSS EUROPEAN STOCKS, DOWN 1.3%. BOND YIELDS UP AGAIN. THE SELLOFF IS HERE. EVERYWHERE YOU LOOK, THERE IS A NEW SUPERLATIVE ON THE BOND MARKETS. DOWN 1.4 PERCENT ON THE CAC 40 IN FRANCE. POLITICAL RISK AND FOCUS THEIR AS WELL AS WE'LL LOOK AT YIELDS JUMPING ACROSS OAT'S. FTSE 100 DOWN 185 POINTS. EVERY SECTOR IN NEGATIVE TERRITORY. WHAT ARE YOU SEEING? GUY: STARTING TO LOOK LIKE ONE OF THOSE DAYS POSSIBLY. LET ME GIVE YOU SOME NUMBERS. OUT OF THE STOXX 600, ONLY 38 ARE HIGHER TODAY. I CANNOT REMEMBER THE LAST TIME I SAW A RATIO LIKE THIS. 38 ARE UP, 555 ARE DOWN, VOLUME IS STRONG. THAT TELLS YOU SOMETHING ABOUT THE DOWNSIDE MOVE, IT IS SUPPORTED. THE MARKET FEELING VERY FRAGILE LOOKING AT THESE NUMBERS HERE. LET'S TALK ABOUT WHERE THERE IS SOME POSITIVITY. THE TECH RALLY STORY IS CERTAINLY THERE. SOITEC UP 0.5% NOW. THIS MICRON STORY FEEDING INTO THE EUROPEAN NARRATIVE. PHARMA A LITTLE NEGATIVE TODAY. WE'VE GOT THE REGENERON PACT, THAT SEEMS TO BE WORKING IN ITS FAVOR. SAAB TRACKING A LITTLE BIT HIGHER, THE DEFENSE STOCK BEING UPGRADED BY BANK OF AMERICA. THERE ARE MANY DOWNSIDE STOCKS THIS MORNING SO PICKING THREE IS HARD. PANDORA DOWN BY CIRCA 3%. INTERESTING IN TERMS OF WHAT WE ARE SEEING IN TERMS OF THE CONSUMER STORY AND WHAT IS HAPPENING WITH THE WAGE STORY AND PAYROLLS STORY. YOU HAVE GOT A MINING TECH COMPANY, A MINING EQUIPMENT COMPANY CUT BY BNP PARIBAS THIS MORNING AS WELL. THE RATIO OF WINNERS TO LOSERS THIS MORNING, HAVE NOT SEEN A DAY LIKE THIS FOR A WHILE AND IT LOOKS LIKE A VERY BIG STRONG MOVE TO THE DOWNSIDE SUPPORTED BY SOME VOLUME. ANNA: IN THAT CONTEXT, LET'S GET AN UPDATE ON SOME OTHER STORIES WE ARE TRACKING. FRANCE'S GOVERNMENT SET TO UNVEIL PLANS TO NARROW THE BUDGET DEFICIT SHARPLY WITH MINISTERS PRESENTING DETAILS OF AN EFFORT TO CURB SPENDING AND PARE THE SHORTFALL. IT KICKS OFF A DEBATE STOKING INVESTOR CONCERN ABOUT THE COUNTRY'S DEBT. DONALD TRUMP HAS SIGNALED HIS APPETITE TO BAN EXPERTS OF DIESEL EXPORTS HAS COOLED, ACKNOWLEDGING WARNINGS THAT A BROAD BAN COULD HAVE UNINTENDED CONSEQUENCES. ENERGY SECRETARY CHRIS WRIGHT INDICATED EUROPE MIGHT SOON PUT FRESH SUPPLIES OF THE FEW ON THE MARKET. MICRON WITH AN UPBEAT FORECAST FOR THE CURRENT QUARTER FUELED BY THE AI BUILDING FRENZY, THOUGH THAT CHIPMAKER WARNED THAT RISING COMPENSATION COSTS WOULD WEIGH ON GROSS PROFIT MARGINS. TOM: LET'S GET MORE AN AI STORY WITH EUROPE AT THE HEART BUT WITH A GLOBAL FOCUS. LEGORA IN TALKS FOR A NEW FUNDING ROUND THAT COULD VALUE IT AT ABOUT $8.5 BILLION, ACCORDING TO SOURCES. THE COMPANY WHICH SELLS AI POWERED SOFTWARE TO LAW FIRMS AND CORPORATE LEGAL TEAMS IS SAID TO BE LOOKING TO RAISE AT LEAST. 300 MILLION JOINING US IS THE CEO OF LEGORA, MAX JUNESTRAND. YOU'VE GOT SOME FRESH NUMBERS. HOW ARE THINGS LOOKING? WHAT IS REVENUE LOOKING LIKE? MAX: IT'S BEEN GREAT. PROBABLY THE MOST HECTIC QUARTER IN THE COMPANY'S HISTORY. WE HAVE MORE REVENUE THIS QUARTER THAN WE DID IN ALL OF 2025. I JUST FLEW IN FROM MUNICH, WHERE WE OPENED OUR NEW OFFICE. IT HAS BEEN FUN TO SEE LEGAL REALLY TAKE OFF. I FEEL LIKE WE SAW THIS SURGE IN CODING, NOW THE SAME IS HAPPENING IN THE LAW. 800 NEW CUSTOMERS IN THIS QUARTER AND WE ARE UP OVER $200 MILLION OF ARR. IT TOOK US 18 MONTHS TO GO FROM ONE TO 100 AND LESS THAN SIX MONTHS TO GO FROM 100 TO 200. TOM: IS THAT PACE OF REVENUE GROWTH SUSTAINABLE? WHAT IS DRIVING IT? IS A CORPORATE TEAM? IS IT TEAMS WITHIN CORPORATE OR INCOME LEGAL FIRMS? WHERE IS MOST OF THE GROWTH COMING FROM? MAX: IN EARLY 2025, WE OPENED UP OUR OFFICE IN THE UNITED STATES AND THAT HAS BECOME OUR LARGEST MARKET BY REVENUE, SOMETHING WE COULD NOT PREDICT WHEN WE WERE THREE ENGINEERS IN A BASEMENT IN STOCKHOLM. 50% OF OUR NEW MARKET IS COMING FROM IN-HOUSE LEGAL DEPARTMENTS. WHAT IS INTERESTING ABOUT THAT IS WHEN AI FIRST ARRIVED, MANY LAW FIRMS WERE QUICK TO ADOPT THAT IN A PURSUIT TO DELIVER FASTER SERVICES TO CLIENTS BUT NOT INCREASING THE WE SEE LARGE ENTERPRISES LIKE SALESFORCE AND BARCLAYS ADOPT LEGORA AND THEIR IN-HOUSE LEGAL TEAMS IN A PURSUIT TO BE MORE EFFICIENT AND DO MORE LEGAL WORK ON THEIR OWN. ANNA: I WANT TO ASK YOU THE JOBS QUESTION AND ABOUT WHAT YOU ARE LEARNING ABOUT THAT TYPES OF LEGAL JOBS THAT STAY AND THE TYPES OF LEGAL JOBS THAT DO NOT STAY IN THIS NEW WORLD. AN OPTIMIST THINGS YOU JUST GET MORE A LAW FOR MORE PEOPLE BUT A PESSIMIST JUST THINKS SOMETHING DIFFERENT. MAX: I AM AN OPTIMIST. I AM AN ENTREPRENEUR. CUSTOMERS ARE ACTUALLY HIRING MORE LAWYERS. WHAT IS SO INTERESTING IN THE LEGAL INDUSTRY IS THAT IT IS FUNDAMENTALLY SUPPLY CONSTRAINED. THE LEGAL SERVICE SUPPLY CANNOT MEET THE CURRENT DEMAND, BECAUSE THE DEMAND IS ALMOST INFINITE. IF YOU COULD REVIEW EVERY CONTRACT, YOU WOULD. IF YOU COULD RUN DUE DILIGENCE ON AN ASSET BEFORE YOU TAKE IT TO AN INVESTMENT COMMITTEE IN A PRIVATE EQUITY FROM, YOU WOULD. IF YOU CAN MANAGE YOUR CLAIMS MORE EFFECTIVELY, YOU WOULD. IF YOU'RE A TECH COMPANY THAT COULD FILE FOR MORE PATENTS, YOU WOULD. WE ARE SEEING MORE LEGAL WORK GET DONE. ANNA: SOME OF THOSE THINGS SEEM LIKE THE ADDED COST BUT DON'T BRING REVENUE. IF THEY ARE JUST HIRING MORE PEOPLE, DOES THAT UNDERMINE THE ARGUMENTS FOR NEEDING THIS TECHNOLOGY? MAX: I THINK IT IS, HOW DO YOU DO MORE? WE ARE A SOFTWARE COMPANY HIRING SOFTWARE ENGINEERS AT THE FASTEST PACE WE POSSIBLY CAN BECAUSE THERE'S SO MUCH SOFTWARE WE WANT TO BUILD. IN THE SAME WAY, COMPANIES ARE NEEDING TO KEEP UP WITH MORE REGULATION ALL OVER THE WORLD. EMPLOYEES ARE GETTING BETTER WITH THE HELP OF CHATGPT TO SUE THEIR EMPLOYERS. THERE IS MORE LEGAL WORK HAPPENING IN THE WORLD. BY BUILDING BETTER TOOLS FOR THE LEGAL PROFESSIONALS TO MANAGE THAT WORK, WE ARE SEEING MORE STUFF GETTING DONE. GUY: DO YOU LIKE LONDON? MAX: I LOVE LONDON. GUY: DO YOU WANT TO LIVE HERE? MAX: I WOULD BUT I AM IN THE PROCESS OF MOVING TO NEW YORK. GUY: OUT OF SWEDEN, WHY ARE YOU GOING TO NEW YORK, WHAT IS IT ABOUT NEW YORK THAT MAKES IT BETTER THAN LONDON? AS A STARTUP IN EUROPE, WHAT DOES THAT TELL ME ABOUT THE ECOSYSTEM HERE? MAX: I WAS ON WITH THE AI MINISTER YESTERDAY ON A PANEL AND WE WERE TALKING ABOUT WHAT MAKES LONDON UNATTRACTIVE MARKET BECAUSE THIS WAS OUR FIRST INTERNATIONAL OFFICE AND HAS BECOME OUR NEWEST ENGINEERING HUB. WHAT IS INTERESTING TO ME IS THAT THERE IS ONE, SO MUCH TALENT. SECONDLY, IT IS A MARKET THAT WITHIN 20 MINUTES, YOU CAN GO AND SEE ALL OF YOUR CUSTOMERS. IT IS LIKE A PRESSURE COOKER. AND THERE ARE SO MANY, IN OUR CASE, TALENTED LAWYERS WHO USED TO PRACTICE WHO ARE NOW LOOKING TO GET INTO TECH. WE HAVE A VERY UNIQUE ROLE AT LEGORA CALLED THE LEGAL ENGINEER. IT IS ALMOST LIKE A NEW PROFESSION FOR A LEGAL PROFESSIONAL. INSTEAD OF STAYING AT A LAW FROM OR GOING IN-HOUSE, THEY CAN BECOME A TECH LAWYER. THEY BRING THEIR EXPERTISE IN M&A, LITIGATION, OR BANK AND FINANCE BACK TO THE PROFESSION THEY USE TO SERVE AND THAT TEAM WE WILL GLOBALLY. GUY: DO JUNIOR LAWYERS NEED TO LEARN HOW TO CODE? IF YOU'RE A LAWYER, JUNIOR LAWYER WATCHING OUT, WHAT ARE THE CORE SKILLS YOU WILL NEED? MAX: WHAT IS SO INTERESTING ABOUT LARGE LANGUAGE MODELS AND TOOLS LIKE LEGORA, THE CODING LANGUAGES ENGLISH. I AM NOT VERY GOOD WITH THE LANGUAGE BUT LAWYERS ARE VERY TALENTED WITH WORDS. THEY ARE ONE OF THE BEST PROGRAMS AND DRIVERS OF OUR TOOLS. GUY: THIS IS TAKING ME IN A DIRECTION I HAD NOT ANTICIPATED AT ALL. DO YOU LIKE LONDON? NO, NEW YORK IS BETTER. WHY IS NEW YORK BETTER? MAX: IF I COULD LIVE IN THREE PLACES, I WOULD LIVE IN NEW YORK, LONDON, AND STOCKHOLM. THE U.S. HAS QUICKLY BECOME THE BIGGEST MARKET FOR US. GUY: IF YOU ARE THINKING OF LISTING, WOULD THAT MAKE IT MORE ATTRACTIVE TO LIST THERE? MAX: IT IS SOMETHING I WOULD LOVE TO BRING TO THE COMPANY ONE DAY AND I THINK IT IS NATURAL WE DO IT IN NEW YORK. IS THERE A POSSIBILITY TO DO IT IN MULTIPLE PLACES? WE ARE SEEING MANY PRESSERS ABOUT THAT AS WELL. WHAT I THINK IS PARTICULARLY INTERESTING ABOUT BUILDING THIS COMPANY GLOBALLY IS THAT AS WE GROW HAVE CAP, WE STARTED THIS YEAR WITH 250 PEOPLE -- GROW HEADCOUNT, WE STARTED THIS YEAR WITH 250 PEOPLE, AT THE END OF THE YEAR WE ARE GOING TO GROW TO 1500. WHETHER YOU GO TO ANY OF OUR OFFICES WHETHER NEW YORK, LONDON OR STOCKHOLM, IT HAS TO FEEL LIKE LEGORA. TOM: HOW DO YOU MAKE THIS A SUSTAINABLE BUSINESS? HOW DO YOU TURN THIS PROFITABLE AND SUSTAIN HEALTHY MARGINS IN THIS BUSINESS? WHAT IS THE PRESCRIPTION FOR THAT? HOW CLOSE ARE YOU TO THAT? MAX: THERE IS A LOT A FOCUS ON THE MODEL LAYER WHEN IT COMES TO GROSS MARGINS AND WE SAW A LOT OF THE NUMBERS FROM ANTHROPIC SO IT IS TOP OF MIND FOR PEOPLE. WE ARE NOT IN THE MODEL BUSINESS, WE ARE IN THE APPLICATIONS BUSINESS. THAT DOES NOT MEAN WE WILL NOT BUILD OUR OWN MODELS AND BEHIND OUR OWN MODEL ROUTER, WE ACTUALLY HAVE SOME OF OUR OWN MODELS BUT WE ARE USING THEM FOR REALLY SPECIALIZED TASKS. WE KIND OF GET TO RIDE MOORE'S LAW WHERE ALL OF THE FRONTIER MODELS ARE IMPROVING IN CAPABILITY AND REDUCING IN COST OVER ALL. WE WERE THE FIRST COMPANY IN OUR MARKET TO MOVE TO A CONSUMPTION-BASED PRICING MODEL WHICH ALIGNS THE VALUE WE ARE DELIVERING TO CUSTOMERS WITH HOW THEY ARE SPENDING FOR IT. TOM: DO THE EVALUATIONS FOR THE FRONTIER LABS MAKE SENSE IN THAT SCENARIO? HOW DOES THAT MAKE SENSE IN THE PICTURE YOU JUST PAINTED? MAX: THERE ARE PEOPLE MUCH LARGER THAN I AM WHO ARE THINKING ABOUT THE EVALUATIONS OF THOSE COMPANIES BUT I THINK THEY WOULD BE A HUGE BUSINESS FOR FRONTIER INTELLIGENCE. IN THE SAME WAY THAT OPENAI SPUN UP A LOT OF NEW FRONTIER MODELS TO WORK ON THESE MATHEMATICAL PRODUCTS, IF YOU ARE IN A BET THE COMPANY LITIGATION OR DISPUTE, I AM IMAGINING YOU WILL SPIN UP 100 PARALLEL REALLY SMART MODELS, FRONTIER INTELLIGENCE, WHO YOU WILL HAVE COMMUNICATED, AND THINK ABOUT THAT PROBLEM NOT FOR FIVE MINUTES IN A CHATBOT, BUT THINK ABOUT IT FOR 48 HOURS AND COME BACK WITH A CASE STRATEGY. I AM SEEING A WORLD WHERE HUMAN PLUS MACHINE INTELLIGENCE IN THE CONTEXT OF LAW WILL BRING A SUPERIOR OUTPUT IN ALMOST EVERYTHING WILL TEST. ANNA: WE HAVE SEEN IN AREAS OF AI THAT IT DOES NOT TAKE IT LONG FOR IT TO DRY THE COPYRIGHT ISSUES AND I KNOW THAT HAS BEEN SOMETHING THAT THIS INDUSTRY HAS DEALT WITH AS WELL. ARE WE DONE WITH THAT? IS THAT ALL GONE? IS IT SETTLED? OR ARE THERE MORE QUESTIONS TO ANSWER? MAX: I THINK THERE ARE QUESTIONS TO ANSWER AND A LOT OF THAT GOES BACK TO THE MODEL LAYER ITSELF. LEGORA AND OUR CUSTOMERS ARE A BENEFICIARY OF THE CONTINUOUS INCREASE IN INTELLIGENCE OF THE MODELS AND A LOT OF COPYRIGHT ISSUES ARE GOING INTO THAT DATABASE ON ITS OWN. I WANT TO TALK ABOUT ONE MORE THING WE ARE DOING. LAST TIME I WAS HERE, WE WERE TALKING ABOUT LEGAL RESEARCH. WHAT DO YOU DO WITH ALL THE BOOKS, ALL THE OLD CASE LAW AND LEGISLATION AND REGULATION? THAT IS A VERY INTERESTING CONVERSATION FROM A CORPORATE PERSPECTIVE. WE HAVE SET OUT TO REBUILD THE LIBRARY OF ALEXANDRIA WHEN IT COMES TO LEGAL RESEARCH AND LEGAL CONTENT. ANNA: THAT IS NOT THROWING OUT COPYRIGHT ISSUES FOR YOU? MAX: NO, BECAUSE WE ARE GETTING THE ORIGINAL SOURCES AND REBUILDING THESE DATABASES AND IT HAS HISTORICALLY BEEN A VERY SMALL NUMBER OF PLAYERS SERVING UP THIS CONTENT IN ALMOST A DUOPOLY FASHION IN TERMS OF HOW THEY CHARGE FOR IT. WITH AI, WE ARE SEEING A WEDGE TO BUILD A 10X BETTER RESEARCH LEGAL PRODUCT FOR EVERY JURISDICTION. GUY: LET'S TALK ABOUT MOATS AND HOW BIG YOURS IS. SECOND TO MARKET, A HUGE ADVANTAGE AND YOU ARE CERTAINLY MAY BE PROVING THAT POINT. WHAT ABOUT THE THIRD WAVE? WHY CAN'T CLAUDE ARE ONE OF THE OTHER LLM'S COME UP WITH A PLUG IN OR A WAY THEY CAN COMPETE WITH YOU? HOW DO YOU STOP THAT? MAX: ALL OF THEM ALREADY HAVE. CLAUDE LAUNCHED THEIR LEGAL PLUG-IN TWO DAYS INTO MY FUNDRAISING, WHICH WAS REALLY FUN. WE SAW THE PUBLIC LEGAL TECH STOCKS DROP OFF BUT THE DEMAND FOR THE PRIVATE LEGORA STOCK CONTINUED TO RISE. I THINK THERE'S BEEN AN INCLINATION FROM THE BIG LABS TO SAY WE CAN DO EVERYTHING. WE ARE GOING TO DO CLAUDE FOR LEGAL, FINANCE, TAX, CODING. YOU LOSE FOCUS. THAT BECOMES A SYQUEST. AT LEGORA, 1100 PEOPLE WAKE UP IN THE MORNING EVERY DAY AND OBSESS ABOUT, IT IS THE QUEST, THE MISSION. WE LIKE TO SAY THAT AT LEGORA, WE ARE MISSIONARIES AND SOME OF OUR COMPETITORS ARE MERCENARIES. WHAT HAPPENS IS THERE IS SO MUCH WORK THAT GOES INTO IT AND THE 30% AND A KIND OF LOOKS LIKE AN ICEBERG. IT IS EASY TO MAKE IT LOOK PRETTY AT THE TOP ESPECIALLY WITH AI, BUT WHEN YOU HAVE 500,000 DOCUMENTS IN A DISPUTE, YOU HAVE TO MAKE SURE YOU DON'T LOSE A SINGLE DETAIL. YOU ARE NOT GOING TO RELY ON CLAUDE, YOU ARE GOING TO RELY ON LEGORA. TOM: MAX JUNESTRAND, CEO OF LEGORA. GUY: LET'S TAKE A LOOK AT THE BOND MARKET. SOME FAIRLY BIG MOVES. U.S. FUTURES ARE DEFINITELY ROLLING OF HER EARLIER HIGHS IN A FAIRLY SUBSTANTIAL WAY. WE GO BACK TO THE BOND MARKET WHERE YOU ARE SEEING FRANCE WAS UP TENT A WHILE AGO, 130 OVER IN GERMANY, A BIG SELLOFF IN THE BOND MARKET THIS MORNING AND THAT IS RIPPLING THROUGH INTO FIXED INCOME AS WELL. THE EURO UNDER PRESSURE. WE HAVE BEEN WATCHING THAT QUITE CAREFULLY. THE BOND MARKET FEELS LIKE IT IS BACK IN CHARGE THIS MORNING. IT IS INTERESTING. U.S. FUTURES, I AM GOING TO TRACK U.S. FUTURES AND SEE HOW THAT STORY DEVELOPS. ANNA: COMING UP, IT IS BUDGET DAY IN FRANCE AS MINISTERS PREPARED TO UNVEIL PLANS FOR AN EFFORT TO CURB SPENDING AND PARE THE FISCAL SHORTFALL. 139 BASIS POINTS OAT'S OVER BUN RIGHT NOWDS. WHAT KIND OF PRESSURE DOES THAT PUT ON FRENCH POLICYMAKERS? THIS IS BLOOMBERG. ♪ ANNA: WELCOME BACK. THIS IS "THE OPENING TRADE." LET'S START WITH THE BOND MARKETS. WE ARE SEEING HIGHER YIELDS. YOU SEE WHAT IS HAPPENING WITH 30 YEARS, WE HAVE GONE OVER 6% ON THE U.K. 30 YEAR. THE U.S. 10 YEAR TOUCHING NEW LEVELS THAT WE HAVE NOT SEEN FOR A NUMBER OF DECADES. IF I LOOK AT THE 10 YEAR HORIZON, YOU SEE EVEN BIGGER MOVES IN FRANCE. WE ARE UP BY NINE BASIS POINTS ON THE FRENCH OAT'S THIS MORNING, U.K. GILTS, THE 10 YEAR HORIZON UP BY 10 BASIS POINTS SO A BIG MOVE IN THE BOND MARKETS. GUY: 131.3 FRANCE OVER GERMANY. WE THOUGHT 120, 125 WAS STARTING TO A LOOK FAIRLY AGGRESSIVE BUT THE RATE OF CHANGES EXPORT INERT. FRENCH MINISTER SET TO PRESENT THE DETAILS OF THE BUDGET TO CURB SPENDING AND PARE THE NATION'S FISCAL SHORTFALL, KICKING OFF A DEBATE WHICH RISKS TOPPLING THE PRIME MINISTER AND SPARKING CONCERNS OVER THE COUNTRY'S DEBT YET AGAIN. WE ARE JOINED FROM PARIS. GIVEN WHAT IS HAPPENING IN THE BOND MARKET, WHAT CAN WE EXPECT FROM THIS BUDGET? THIS IS THE LAST BUDGET UNDER PRESIDENT MACRON. THE MARKET IS NOT SENDING A PARTICULARLY POSITIVE SIGNAL. CAN THIS BUDGET DEAL WITH WHAT I SEE ON THE SCREEN IN FRONT OF ME? >> IT IS ACTUALLY VERY HARD TO IMAGINE THAT THIS BUDGET WILL CONDEMN THE MARKETS. 24 HOURS AGO, WE WERE TALKING ABOUT 120 BASIS POINTS ON THE SPREAD BETWEEN THE FRENCH AND GERMAN 10 YEAR, NOW WE ARE TALKING ABOUT 230 AND IT IS GETTING VERY DANGEROUSLY CLOSE TO 5% ON THE 10 YEAR. I MEAN, WE HAD THIS YESTERDAY WE HAD SOME EARNINGS SAYING THIS WAS A WAKE-UP CALL. THIS MORNING, WE HAD THE UBS CIO ON YOUR SHOW SAYING WE DON'T EXACTLY KNOW WHEN THIS IS GOING TO STOP, WHAT IS THE LIMIT. IT IS HARD TO SEE HOW THE BUDGET CAN BE BREAKING THAT CIRCUIT. WE EXPECT DETAILS ON THE 54 BILLION EUROS OF EFFORT THAT IS ALREADY BEEN ANNOUNCED BY THE PRIME MINISTER. WE HAVE SOME ATTENTION ON TAXES, MULTINATIONALS, THAT EXCEPTIONAL TAX THAT WILL BE EXTENDED, AND A LOT OF FREEZING OF PENSIONS AND PUBLIC SERVANT SALARIES, FREEZING ON INFLATION, SO NOT INCREASING, DESPITE THE FACT THAT WE HAVE THE LATEST READING ON INFLATION WHICH WAS AT 3.4% JUST COMING OUT YESTERDAY. OBVIOUSLY, A LOT OF ANXIETY ON WHETHER THIS BUDGET CAN ACTUALLY PASS, WHETHER WE ARE AT THE BEGINNING OF ANOTHER, OBVIOUSLY, ESCALATION OF THIS POSSIBLE BOND CRISIS, AND WHETHER THIS GOVERNMENT COULD ACTUALLY BE TOPPLED ON THIS BUDGET OVER THE NEXT FEW WEEKS. GUY: THANKS. CAROLINE COHEN AND IN PARIS KEEPING ON TOP OF WHAT WE ARE WATCHING WITH THIS BOND MARKET STORY. LET'S WIDEN THE LENS, TALK ABOUT WHAT IS HAPPENING MORE BROADLY. SKYLAR MONTGOMERY KONING FROM OUR MLIV TEAM JOINING US AROUND THE DESK. FEELS LIKE THE PACE IS PICKING UP. WHAT IS DRIVING IT? SKYLAR: YESTERDAY WE HAD U.S. PCE DATA AND WE GOT THE REACTION THAT WAS INITIALLY POSITIVE. PART OF IT COULD BE PUT DOWN TO MAY BE THE METHODOLOGY CHANGE MEANT INFLATION WAS NOT AS LOW AS PERCEIVED BUT I THINK IT IS THAT GROWTH RESILIENCE BECAUSE GROWTH WAS VERY STRONG YESTERDAY. YOU STILL HAVE THIS NARRATIVE THAT THE ECONOMY IS OVERHEATING IN THE U.S. THAT MEANS YOU HAVE REASON FOR HIGHER YIELDS. IT ALSO MEANS YOU HAVE BIGGER RISK OF SECOND ROUND IMPACTS. I THINK THE DATA WE GET TODAY WITH ISM AND NONFARM PAYROLLS TOMORROW WILL NOT DETER THAT NARRATIVE AND IT MEANS THAT MAY BE WAGES TOMORROW ARE MORE IMPORTANT. ON TOP OF THAT, YOU HAVE GREATER FOCUS ON THE TERM PREMIUM PART OF YOUR BOND STORY BECAUSE OF WHAT IS HAPPENING IN FRANCE. FROM A FRENCH PERSPECTIVE, THAT PACE HAS PICKED UP A LOT. TOM: WHAT ARE THE SECOND ROUND IMPACTS OF YIELDS AT THESE LEVELS, WHETHER IT IS IN THE EURO ZONE, ON THE U.S., ACROSS DIFFERENT ASSET CLASSES, WHAT ARE YOU LOOKING AT? SKYLAR: WITH FRANCE, THE WORRY IS THAT IT BECOMES SELF REINFORCING. YOU HAVE EXTERNAL FACTORS PUSHING YIELDS HIGHER GLOBALLY. THOSE EXTERNAL FACTORS MEAN YOU STILL HAVE HIGHER BORROWING COSTS, EVEN THOUGH YOU HAVE DOMESTIC FACTORS. HIGHER BORROWING COSTS MEANS DEFICIT DETERIORATION WHICH MEANS HIGHER YIELDS. GOVERNMENTS ARE THINKING, HOW DO WE CONTAIN THAT? SOMETHING THAT HAS BEEN TALKED ABOUT IN KOREA IS MAYBE YOU DO BUYBACKS. THAT IS SOMETHING THE U.S. HAS DONE AS WELL. IT HAS NOT DONE A GOOD JOB OF IT. TOM: YIELD CURVE CONTROL. SKYLAR: THERE IS SOME PRESSURE THAT HAS TO COME SOMEWHERE. IF YOU DO BUYBACKS ON A LARGE ENOUGH SCALE TO CONTAIN YIELDS, YOUR CURRENCY SUFFERS IN KOREA IS TRYING TO CONTAIN THEIR CURRENCY SO THERE IS SO MUCH PRESSURE IN THE SYSTEM, AND NEEDS TO COME OUT SOMEWHERE, AND WE INCREASINGLY SEE THAT POTENTIALLY BEING CHOPPY OR MARKETS AND VOLATILITY. ANNA: IF WE ARE THINKING ABOUT FRANCE AND WHAT THEY CAN DO, WHAT FRANCE CAN DO IN SORT OF SELF-HELP MEASURES, IF THEY PASSED THE BUDGET, IS THAT ENOUGH? IT MIGHT NOT BE ENOUGH TO BRING DOWN THE SPREAD? HOW DOES IT LOOK TO YOU? SKYLAR: I DON'T THINK SO. PARTLY IT IS THE FACT THAT YOU HAVE GLOBAL PRESSURES PUSHING UP FRENCH YIELDS. 5% IS NOT A GOOD DEFICIT. PART OF THE NEGATIVE REACTION IN THE PAST FEW WEEKS IS THIS I DID PERCENT IS VERY MUCH ABOVE THE 3% EU GOAL AND THEY'RE WANTING TO GET THERE BY 2029. HOW DO YOU CUT 2% IN TWO YEARS? YOU ARE HEADED TO AN ELECTION2 IN7 20 THAT COULD BE QUITE CONTENTIOUS -- ELECTION IN 2027 THAT COULD BE QUITE CONTENTIOUS. YOU ARE ON THIS POOR POLITICAL TRAJECTORY IN EUROPE, YOU ARE GETTING FRAGMENTATION, WHICH MEANS GOVERNMENTS DO NOT STAY IN POWER THAT LONG AND IT IS HARD TO MAKE YOUR DEFICIT BACKDROP BETTER. IT IS THIS LONG-RUNNING ISSUE THAT IS NOT GOING TO WAIT. MAY BE YOU GET SOME RELIEF IN THE SHORT-TERM RESEARCH ENDED THE DIRECTION IS THAT WAY AND THEY ARE INCREASING QUESTIONS ABOUT THE BACKSTOP FROM EUROPE. YOU HAVE THE TPI'S, THE TOOL THE ECB CAN USE BUT IT COMES WITH CONDITIONS. IT HAS DO NOT BE DOMESTICALLY DRIVEN, WISH FRENCH CLEARLY IS, IT CANNOT GO AGAINST POLICY AND IT SHOULD BE THE COUNTRY IS GOING BACK TO THAT 3% AND NONE OF THOSE CONDITIONS ARE MET FOR FRANCE. ANNA: IT WON'T BE INTRIGUING EVEN IF IT IS 200 BASIS POINTS IN THE CURRENT SITUATION. GUY: CHRISTINE LAGARDE HAS SAID HISTORICALLY I AM NOT HERE TO CONTROL SPREADS. ANNA: AND REWORDED IT SLIGHTLY. GUY: IF YOU ARE PUTTING THIS TRADE ON, IF YOU ARE SHORT OAT'S, WHAT ARE THAT STOPS THAT TRADE? I DON'T KNOW WHAT IS IT THAT STOPS THAT. IF YOU ARE A TRADER AND YOU'VE GOT THAT POSITION ON, WHAT ARE YOU WATCHING FOR? SKYLAR: HISTORICALLY IT HAS BEEN THE ECP OR SOME KIND OF EUROPEAN BACK TRUCK COMING IN BUT IT SEEMS LIKE A PRETTY HIGH BAR FOR THAT COMING TO FRUITION. HOW DOES IT GO INTO EURO-DOLLAR? I THINK THERE'S BEEN A MINIMAL IMPACT AND EURO-DOLLAR PARTLY BECAUSE THERE IS ASSUMPTION OF THAT BACKSTOP. IF THAT BACKSTOP IS NOT THERE AND THERE IS POTENTIAL CONTAGION RISK, SO MAYBE IT IS NOT JUST FRENCH UNDERPERFORMS, IT IS ITALY AS WELL, EUROPE IS UNDER PRESSURE. TOM: SKYLAR MONTGOMERY KONING ON A VERY BUSY WEEK, VERY BUSY DAY. EUROPEAN STOCKS DOWN MORE THAN 1%. U.S. FUTURES CURRENTLY FLAT. NASDAQ FUTURES DOWN, POINTING HIGHER. THAT IS IT FOR "THE OPENING TRADE." "THE PULSE" IS UP NEXT. THIS IS BLOOMBERG.