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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak You podcast, available every morning

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Speaker 2: on Apple, Spotify, or wherever you listen. It's Monday, the

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Speaker 2: twenty eighth of April in London. I'm Caroline HIPKIF.

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Speaker 3: And I'm Stephen Carroll. Coming up today, Investors rush to

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Speaker 3: protect themselves from more pain after a double hit from

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Speaker 3: dollar and US equity weakness.

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Speaker 2: Cargo shipments from China to the US plummet, as America

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Speaker 2: confronts a looming supply shock.

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Speaker 3: Pluses Europe ree arms. Private equity firms are scouring for

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Speaker 3: investment opportunities in a defense sector they once shunned.

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Speaker 2: Let's start with a roundup of our top stories.

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Speaker 3: Investors around the world who bought dollars to invest in

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Speaker 3: US stocks are facing significant glasses as both the S

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Speaker 3: and P five hundred and the dollar decline simultaneously. They're

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Speaker 3: now rushing to protect themselves from further declines with more.

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Speaker 3: Here's Bloomberg'schris Pitt for you.

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Speaker 4: It was the money minting trade for investors in London,

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Speaker 4: Paris and Tokyo. Buy dollars and pour the proceeds into

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Speaker 4: the SMP five hundred and Nasdaq. That trade unraveled quickly though,

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Speaker 4: after President Donald Trump launched his global trade war, sending

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Speaker 4: shockwaves across markets. A six percent drop in the SMP

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Speaker 4: five hundred this year has ballooned into a fourteen percent

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Speaker 4: loss for investors measuring returns in euros and yen. The

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Speaker 4: losses have left investors scrambling to hedge their American equity

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Speaker 4: portfolios against further dollar weakness. Meanwhile, Bank of America strategists

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Speaker 4: estimate that are returned to pre pandemic hedging levels could

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Speaker 4: mean an additional five trillion dollars in foreign US equity

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Speaker 4: exposure being covered in London. Chris Pitt Bloomberg Radio.

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Speaker 2: The number of ships heading to the US from China

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Speaker 2: has plunged by about forty percent since the United States

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Speaker 2: raised tariffs to triple digits in early April. Ship tracking

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Speaker 2: data compiled by Bloomberg shows those vessels are carrying roughly

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Speaker 2: three hundred and twenty thousand containers. That's about a third

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Speaker 2: few eth and immediately after President Chump announced plans to

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Speaker 2: hike tariffs on nearly all Chinese goods to one hundred

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Speaker 2: and forty five percent. Deborah Elms is head of trade

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Speaker 2: policy at the Hindrich Foundation.

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Speaker 5: You're already seeing shortages happening. We've already seen a number

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Speaker 5: of ship sailings that have been canceled. Ports on the

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Speaker 5: West coast of the United States that are traditionally receiving

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Speaker 5: a lot of goods out of China in particular, now

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Speaker 5: no longer receiving goods or shortly to be emptied essentially,

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Speaker 5: and you know that is going to have an impact

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Speaker 5: on consumers already in the United States. That's just going

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Speaker 5: to escalate.

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Speaker 2: Deborah Elms, speaking there as forecast is surveyed by Bloomberg

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Speaker 2: expect imports to fall at a seven percent annual rate

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Speaker 2: in the second corps to which would be the biggest

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Speaker 2: drop since the onset of the COVID nineteen pandemic.

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Speaker 3: As the US confronts the growing prospect of a China

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Speaker 3: supply chock, the Trump administration is signaling that Asian countries

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Speaker 3: such as South Korea, Japan, and India are leading the

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Speaker 3: way in tariff negotiations. Speaking to ABC's This Week program,

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Speaker 3: US Trategury Secretary Scott bes And said nations in the

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Speaker 3: region are preparing to make significant concessions to secure a deal.

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Speaker 6: We've had several of these Asian countries that come in

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Speaker 6: and said, oh, well, we'll stop doing this, this and this.

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Speaker 6: And I look at these lists and I think, how

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Speaker 6: did we get here? How do we get here? Because

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Speaker 6: this trading system has been so unfair, And as President

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Speaker 6: Trump says, I don't blame the countries, I blame the

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Speaker 6: previous administration, so that let them get away with it.

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Speaker 3: Scott Bessant also told ABC's This Week that there are

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Speaker 3: eighteen important US trading partners, including China, which is undergoing

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Speaker 3: a special negotiation, adding that some of these are moving

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Speaker 3: along very well, especially with the Asian countries.

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Speaker 2: UK economic growth is likely to be derailed by the

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Speaker 2: global trade war. That's according to the ey Item Club,

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Speaker 2: which has downgraded its GDP forecasts, saying that it will

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Speaker 2: now expect the UK to grow by zero point nine

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Speaker 2: percent next year. That's nearly half what it had previously forecast.

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Speaker 2: The shift comes after the UK government said that it

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Speaker 2: held positive and upbeat talks with US Treasury Secretary Scott

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Speaker 2: Bessent about a possible trade deal.

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Speaker 3: Canadians are going to the polls today in an election

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Speaker 3: that's been overshadowed by Donald Trump. The incumbent Liberal Party

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Speaker 3: had faced near certain defeat before Trump's threats to annex

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Speaker 3: the country supercharged their polling performance. Leader Mark Karney has

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Speaker 3: vowed to fight back against the US President.

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Speaker 7: Trump's trade war has literally ruptured the global economy and

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Speaker 7: and he has betrayed Canada. Amer BEA's neighbor, America's closest

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Speaker 7: friend and most steadfast.

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Speaker 3: Ally a former central banker, Carnea has a narrow lead

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Speaker 3: in opinion polls over the favorite. A few months ago,

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Speaker 3: the Conservative Pierre Polievre paralieva Is built his campaign on

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Speaker 3: attacking the government's economic management and the cost of leven crisis.

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Speaker 3: Whoever wins, economists project Canada's next prime minister is set

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Speaker 3: to inherit a stagnant economy facing tariffs, it's closest trading partner.

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Speaker 2: Saying with Canada. Vancouver Police say that a fatal car

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Speaker 2: attack that took place on the weekend was not terrorism.

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Speaker 2: The statement comes after eleven people were killed in dozens

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Speaker 2: injured after a driver plowed into a crowd at a

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Speaker 2: street festival on Saturday. The suspect, a lone thirty year

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Speaker 2: old man, was arrested at the scene. Acting Police Chief

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Speaker 2: Steve Rye says the incident is one of the most

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Speaker 2: serious in Vancouver's history.

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Speaker 8: This is a tragedy the likes of which the city

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Speaker 8: has never experienced before. Eleven people have now died. Their

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Speaker 8: ages range from five to sixty five. Dozens more are injured,

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Speaker 8: some critically and some have not yet been identified.

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Speaker 2: Vancouver's police officer Steve Riye speaking there. According to his department,

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Speaker 2: the investigation will continue, but there is no ongoing danger

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Speaker 2: to the public.

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Speaker 3: And In sports news, Liverpool have won the English Premier

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Speaker 3: League Championship, earning a record equaling twentieth top flight title.

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Speaker 3: They confirmed the victory with a five to one win

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Speaker 3: over Tottenham Hotspurt and Field yesterday, matching the achievement of

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Speaker 3: rivals Manchester United. Speaking after the match, Liverpool manager Ernest

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Speaker 3: Slott praise to the clubs ethos.

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Speaker 9: The quality the players have was I think obvious for everyone,

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Speaker 9: but the culture of hard work, the culture of not

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Speaker 9: only from the players but also from the staff members

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Speaker 9: have been incredible and that is one of the reasons

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Speaker 9: why we could achieve what we've achieved this season.

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Speaker 3: Liverpool's Ernestlott there, who was now the first Dutch manager

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Speaker 3: to win a Premier League championship. They say is the

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Speaker 3: club's secondly victory in five years, after capturing the title

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Speaker 3: in twenty twenty without any stadium spectators amidst the coronavirus pandemic.

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Speaker 2: Those are our top stories for you this morning. Let's

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Speaker 2: get to the markets. Ectian bond market volatility seems to

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Speaker 2: be easing at least at the start of this week.

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Speaker 2: But we've got a raft of earnings both of the

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Speaker 2: US and Europe plus USGDP. The forecast for the first

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Speaker 2: quarter GDP i've really been slashed, the expectation zero point

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Speaker 2: four percent quarter on quarter growth. In terms of Asian

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Speaker 2: equities modestly high. You got the Topics up almost one percent.

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Speaker 2: South Korean shares this morning on the COSP are also

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Speaker 2: rising about a tenth of one percent. Scott Bessett was

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Speaker 2: talking about Asian countries are moving along very well in

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Speaker 2: terms of the trade discussions. We had four days of

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Speaker 2: gains for the S and P five hundred last week.

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Speaker 2: Futures though are down half of one percent this morning.

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Speaker 2: Europeans stop futures gaining two tenths. The dollar and treasuries

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Speaker 2: are steady this morning. Gold is down six tenths of

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Speaker 2: one percent ten year US yields this morning, trading up

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Speaker 2: for twenty five upper basis point Stephen.

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Speaker 3: In a moment, we'll bring you more why stock investors

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Speaker 3: are bracing for more dollar pain plus by private Equity

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Speaker 3: now has defense firms firmly in their targets. But first

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Speaker 3: on another story that caught her eye this morning, something

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Speaker 3: literally out of this world to start your Monday morning.

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Speaker 3: Astronomers have discovered a planet that may have signs of life,

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Speaker 3: with the possible ocean and atmosphere containing water, vapor, and

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Speaker 3: rain clouds. Now, the signs are still tentative. Some say

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Speaker 3: it's too soon to tell, but there's certainly a lot

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Speaker 3: of excitement about this planet, which is called K two

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Speaker 3: eighteen by it is look is absolutely fascinating. So I

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Speaker 3: had to go off and actually watch one of the

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Speaker 3: videos to one of the scientists who made this space

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Speaker 3: with you, ca Yeah, just to try to learn something

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Speaker 3: about it is listen is pretty complicated, and our Bloomberg

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Speaker 3: Opinion science columnists fd Flamm has been writing about this

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Speaker 3: discovery too.

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Speaker 2: Basically she makes it easy for someone. I mean, did

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Speaker 2: we finally find life on another planet? The Cambridge scientists

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Speaker 2: in the video says no, yes.

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Speaker 3: But I mean, look, it's a story too about scientific cooperation,

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Speaker 3: which is very interesting because there are different elements of

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Speaker 3: this which have allowed them to at least, you know,

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Speaker 3: point to the potential that this could be the case

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Speaker 3: thanks to research for using both the Hubble telescope but

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Speaker 3: also the James Webspace telescopes as well, and this is

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Speaker 3: sort of collaboration is perhaps the key to the next

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Speaker 3: big advancements in this area as well, if they does

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Speaker 3: have a note of caution the piece as well though

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Speaker 3: on to your point Caroline saying that you know, this

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Speaker 3: is awesothing that's going to need new investment, particularly from

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Speaker 3: the likes of NASA to be able to try and

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Speaker 3: advance these theories as well, and of course questions over

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Speaker 3: NASA's budget and focus too, so perhaps some of these

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Speaker 3: developments may not come as fast as someone the scientific

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Speaker 3: community would like to be able to see.

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Speaker 2: And if you want to learn a little bit more

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Speaker 2: about astrophysics and this discovery, of course, we'll put Helik

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Speaker 2: in the show notes when you download our podcast.

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Speaker 3: The market turmoil that's followed Donald Trump lodging as global

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Speaker 3: trade wars caused double pain for a common trade US

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Speaker 3: by investors outside of the United States to buy dollars

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Speaker 3: and invest in US stocks. Now traders are trying to

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Speaker 3: guess what happens next. RFX and Rights reporter Alice Gladhill

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Speaker 3: joins US now for more. Alice, good morning, talk us

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Speaker 3: through first of all, how this trade worked and how

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Speaker 3: popular it was.

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Speaker 1: So imagine you're an investor in Paris or Tokyo and

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Speaker 1: you wanted a piece of the action in the red

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Speaker 1: hot US stock market, so you buy some dollars to

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Speaker 1: invest in some US shares. And he had to remember,

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Speaker 1: in the post pandemic period, the US was very much

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Speaker 1: the place to be, so the economy was more resilient.

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Speaker 1: Growth kept coming and the labor market stayed strong, and

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Speaker 1: there was a little reason to think that this would

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Speaker 1: break anytime soon. And that was still the case when

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Speaker 1: Trump's elected president, given his pro growth America First policies,

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Speaker 1: and that was expected to reduce that sort of US

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Speaker 1: exceptionalism trade as it was called even more Now. For

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Speaker 1: that reason, many of those foreign investors chose not to hedge.

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Speaker 1: That basically means the hedges basically buy insurance against dollar declines.

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Speaker 1: So the thinking went. US stock's going to keep going up,

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Speaker 1: the dollar will keep going up, and that's going to

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Speaker 1: boost my returns even more. So we don't know exactly

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Speaker 1: how many investors were in this position that we can

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Speaker 1: make some educated guesses. So, according to State Street, which

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Speaker 1: is a large custodian, just under a quarter of non

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Speaker 1: US investors holdings and US equities were hedged against dollar declines.

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Speaker 1: Now that comparedson nearly fifty percent in twenty twenty during

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Speaker 1: the pandemic. Now, we also know from Federal Reserve data

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Speaker 1: that overseas investors had about eighteen trillion of US equities

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Speaker 1: as of December last year. Now, Bank of America does

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Speaker 1: some number crunching and they reckon that if investors were

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Speaker 1: to increase hedge ratios to the average level scene before

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Speaker 1: the pandemic, there'd be about five trillions worth of actually

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Speaker 1: exposure which would need hedges to be put on.

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Speaker 2: So that sounds pretty painful. Then, in terms of what

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Speaker 2: investors are expecting to happen next, then if they, you know,

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Speaker 2: fewer have perhaps hedged, are they betting on the dollar

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Speaker 2: remaining weaker? Do they have clarity?

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Speaker 1: It has been pretty painful, So I think, you know,

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Speaker 1: someone mentioned earlier, six percent decline in the S and

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Speaker 1: P five hundred this year is mean to fourteen percent

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Speaker 1: wipeout for sorry, fourteen percent wipe out for investors who

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Speaker 1: measure their returns in euros in yen. So in terms

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Speaker 1: of what's going to happen next, I think it's a mix.

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Speaker 1: There's lots of signs that some investors are starting to

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Speaker 1: build hedges against further weakness in the dollar. That's based

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Speaker 1: on anecdotal evidence from FX traders at banks like Morgan Stanley.

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Speaker 1: You can also look at FX options markets which show

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Speaker 1: demand hedges creeping up this year. But we also spoke

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Speaker 1: to some investors who are holding out. So they say

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Speaker 1: they've never liked hedging because of the cost associated with

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Speaker 1: that and because it's so hard to predict the twists

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Speaker 1: and turns the dollars they're going to Why pay up

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Speaker 1: for that insurance when you just don't know if it's

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Speaker 1: going to pay off? And they're sticking with their US

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Speaker 1: stocks because they like the investment case or the story

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Speaker 1: around that company. There's also a decent size, a decent

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Speaker 1: sized group of market watches think the dollar is now

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Speaker 1: over sold and it has bounced off of sixteen month

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Speaker 1: low that we saw last week, although it's still around

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Speaker 1: the lust levels we've seen over the last couple of years,

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Speaker 1: and a lot of people do think this is only

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Speaker 1: the start of a major structural decline in the dollar.

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Speaker 1: And then we know that plenty of people are divesting

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Speaker 1: from the US altogether, which I think has been one

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Speaker 1: of the key drivers of the collapse.

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Speaker 3: NASA presses okay a sclad LARFX and Rates reporter, thank

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Speaker 3: you very much for joining US.

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Speaker 2: Private equity firms, meanwhile, are scouring for investment opportunities in

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Speaker 2: European defense, chasing a sector that was once seen as toxic,

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Speaker 2: driven by a historic shift towards increased military spending. Joining

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Speaker 2: us now to discuss this story is Bloomberg's Deals Reporter.

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Speaker 2: Sweet to go open aasth good morning, Sweeter. Look much

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Speaker 2: has changed with President Donald Trump in the White House,

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Speaker 2: who is looking for these defense industry deals. Then in Europe,

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Speaker 2: good morning.

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Speaker 10: We really have firms across sort of the private capital

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Speaker 10: spectrum now looking at the defense sector and now that

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Speaker 10: it's seen as investable once again, as you were saying,

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Speaker 10: you have the likes of KKR looking for new investment

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Speaker 10: opportunities advent monetizing defense assets they all de own. European

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Speaker 10: fund is raising a dedicated eight hundred million euro aerospace

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Speaker 10: and defense fund. CBC last year put together a team

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Speaker 10: for aviation, defense and space deals, so really it's firms

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Speaker 10: across the spectrum here.

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Speaker 3: The sector, though, has been unpopular with investors, and not

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Speaker 3: just for ethical reasons. Are the kind of the barriers

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Speaker 3: too investing in this area just disappearing.

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Speaker 10: Those barriers are definitely beginning to fall away, even if

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Speaker 10: they haven't entirely disappeared yet. Fund managers have sort of

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Speaker 10: rewritten their internal mandates, mainly because they don't want to

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Speaker 10: miss out and potentially lucrative defense bets, and regulators in

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Speaker 10: the UK and and in Europe as well have signaled

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Speaker 10: they'll remove any blockages to capital flows to the sector.

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Speaker 10: They don't want anything that prevents new capital formation in

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Speaker 10: the defense sector.

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Speaker 2: And so when the Europeans think about this, I mean

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Speaker 2: Europe in and of itself as amart all of these

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Speaker 2: billions of dollars of euros for rearmament, even though the

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Speaker 2: plans aren't yet entirely clear from governments. What we do

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Speaker 2: know though, is that it will probably need private capital

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Speaker 2: and partnerships. What is on the cards then when we

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Speaker 2: think about M and A, because some of the m

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Speaker 2: and A has already happened in some as you've been

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Speaker 2: writing about, is still very much to come.

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Speaker 10: Yeah, we certainly think there's lots more to comment speaking

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Speaker 10: to people in the sector, and the expectation is that

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Speaker 10: MINA activity here will ramp up, mainly because the defense

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Speaker 10: supply chain in Europe is very much fragmented, so people

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Speaker 10: see room for consolidation. And besides that, as we've been writing,

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Speaker 10: any p firm that already owns defense assets basically sees

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Speaker 10: this as the moment to monetize those holdings, given the

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Speaker 10: this heightened investor demand for the sector, and most so

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Speaker 10: because valuations in the sector really rising. So we've had Advent,

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Speaker 10: which we mentioned before. They just sold cobboms dot com,

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Speaker 10: which sort of provides antenna systems for ships and soldiers.

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Speaker 10: It's also now looking to sell Ultra Precision Control Systems,

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Speaker 10: which makes these systems that help with missile launchers. And

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Speaker 10: we have Searchlight Capital looking to sell a business that

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Speaker 10: makes safety gear for F thirty five fighter pilots. And

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Speaker 10: it's not just sort of exits and monetizations. We also

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Speaker 10: have pre firms looking to make new investments, which will

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Speaker 10: lead to more MNA. We wrote last week about Bain

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Speaker 10: and KPS being interested in a Veco's defense unit, for example,

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Speaker 10: So there's lots more MNA for sure.

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Speaker 3: How confident are these investors that they say is going

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Speaker 3: to be a permanent shift towards a greater ramp up

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Speaker 3: in European defense pending that perhaps you know after this

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Speaker 3: presidential term that things couldn't just go in the other direction.

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Speaker 10: I guess there's always the risk of that, and private

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Speaker 10: cap reforms are certainly I guess, adept at making the

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Speaker 10: best of the micro climate. So for now, at least

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Speaker 10: for the foreseeable future, it looks like Europe will continue

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Speaker 10: to invest in the sector, so they want to make

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Speaker 10: the most of this moment.

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Speaker 3: This is Bloomberg Daybreak Europe, your morning brief on the

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