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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Youroate podcast. Good morning, It's Friday, the twenty second

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Speaker 1: of August. I'm Stephen Caroll and London coming up today.

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Speaker 1: Default warnings begin to pile up for the lucrative private

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Speaker 1: credit market as analysis suggests stress levels are underappreciated. Bond

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Speaker 1: investors away to key speech by the Federal Reserve charge

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Speaker 1: your own pal as they look for signs policymakers may

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Speaker 1: start cutting rates next month. Plus why Germans are increasingly

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Speaker 1: ditching the safety blanket of savings accounts for the risk

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Speaker 1: and reward of the stock markets. Let's start with a

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Speaker 1: roundup of our top stories. Warnings on defaults are starting

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Speaker 1: to pile up in the one point seven trillion dollar

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Speaker 1: private credit market. A number of analysts this month are

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Speaker 1: holding up a light to signs of underlying stress. Analysis

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Speaker 1: by JP Morgan says the rate of companies not making

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Speaker 1: payments in this space is five point four percent. That's

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Speaker 1: double the default rate most see in private credit. Bloomberg's

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Speaker 1: James Wilcock has more.

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Speaker 2: Money has surged into private credit in recent years, then

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Speaker 2: interest rate shot up with many businesses unable to pay.

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Speaker 2: Private lenders use tools like payment in kind loans, but

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Speaker 2: rather than being charged interest, the sum gets added on

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Speaker 2: to your final debt. Analysts call these agreements shadow or

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Speaker 2: selective defaults. They say, when you take these private arrangements

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Speaker 2: into account, the rate of defaults in the space doubles

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Speaker 2: to between five or six percent. That has spooked many,

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Speaker 2: including regulators, who fear it hides stressed firms and could

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Speaker 2: be the prelude to a bubble. In London, James Wilcock

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Speaker 2: Bloomberg Radio, the.

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Speaker 1: Federal Reserve charge your own Power, will deliver a key

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Speaker 1: policy speech in the coming hours as bond investors look

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Speaker 1: for signs that the Central Bank plans to cut rates

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Speaker 1: at its next meeting in September. Rates been on hold

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Speaker 1: since December as policymakers worry about sticky inflation and the

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Speaker 1: possible impact of tariffs. Speaking to Bloomberg, Chicago FED President

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Speaker 1: Austin Goolsby says he's hopeful the latest inflation print was

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Speaker 1: a one off.

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Speaker 3: The last inflation report that came in where you saw

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Speaker 3: services inflation, which is probably not driven by the tariffs,

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Speaker 3: really start shooting up is a danger.

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Speaker 4: That's a dangerous data point.

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Speaker 5: I'm hoping that that's a bit of a blip, so

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Speaker 5: I think we still have a fair bit of information

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Speaker 5: that we're going to get before September or the whole

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Speaker 5: fall to determine what path we're going to be on.

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Speaker 1: Goolsby's comments come as Jerome Pile faces mounting pressure from

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Speaker 1: President Donald Trump and other White Eyes officials to resume

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Speaker 1: cutting rates. Meanwhile, reporting from the Wall Street Journals suggests

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Speaker 1: the Fed chief will also use his speech to scrap

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Speaker 1: the Central Bank's recent approach to setting rates that focused

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Speaker 1: on risks associated with near z zuro interest rates and

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Speaker 1: low prices. And you can listen to Jerome's Pal's speech

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Speaker 1: live on Bloomberg Radio at three pm, with full analysis

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Speaker 1: and reaction to follow. It's being reported that in Nvidia

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Speaker 1: has told its component suppliers to halt production of the

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Speaker 1: company's H twenty AI chip, according to the information, which

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Speaker 1: cites unidentified sources, and Vidia issued the orders this week

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Speaker 1: after Beijing urged local firms to stop using the chips.

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Speaker 1: CEO Jensen Wang says the firmason talks at Beijing.

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Speaker 6: US government Pertrup administration has approved licenses for US to

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Speaker 6: export age twenties to China. Recently, China asked some questions

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Speaker 6: about some security back doors in our ships. We have

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Speaker 6: made it very clear and put to rest that H

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Speaker 6: twenty has no security backdoors.

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Speaker 1: Jensen Wong, speaking there in Taipei. The HEIGHT twenty is

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Speaker 1: a less powerful version of the company's cut Edge AI accelerators,

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Speaker 1: and was designed to comply with US export controls. Whoever,

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Speaker 1: any suspension of production would raise fresh questions about underlying

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Speaker 1: demand for the product. The United States and the European

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Speaker 1: Union have taken steps to formalize their trade packed. The

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Speaker 1: two issued a joint statements setting out specific benchmarks for

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Speaker 1: the EU to secure tariff discounts on cars, pharmaceuticals, and semiconductors.

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Speaker 1: The EU's trade chief, Marschefkovich, says there's more work yet

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Speaker 1: to be done.

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Speaker 7: This is not the end, it's the beginning. This framework

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Speaker 7: is the first step, one that can grow over time

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Speaker 7: to cover more sectors, improve market access, and strengthen our

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Speaker 7: economic dies even further.

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Speaker 1: Chefovich and other EU officials have been criticized for failing

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Speaker 1: to get lower tariffs on wine and spirit exports to

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Speaker 1: the United States. A White As official says lower tariffs

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Speaker 1: on EU goods could be in place with in weeks.

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Speaker 1: The British government will buy six new air defense systems

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Speaker 1: to deploy near Ukraine. The UK's Ministry of Defense says

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Speaker 1: it is signing a one hundred and eighteen million pounds

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Speaker 1: contract with European arms manufacturer MDB MBDA for the kit.

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Speaker 1: It comes as European and US defense chiefs meet to

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Speaker 1: discuss what security guarantees they can offer Ukraine if a

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Speaker 1: peace deal is reached with Russia. UK consumers are the

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Speaker 1: most optimistic they've been about their household budgets in a year,

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Speaker 1: according to a closely watched survey. Bloomberg's Crispit has more.

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Speaker 8: The UK has faced something of a heat wave this summer,

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Speaker 8: and it appears that Brits are also warming to the

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Speaker 8: outlook for their personal finances. GfK's index tracking sentiment for

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Speaker 8: the next twelve months rose to five in August, up

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Speaker 8: three points from July. The recovery and household confidence suggests

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Speaker 8: the Bank of England's efforts to ease borrowing costs are

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Speaker 8: finally filtering through to the real economy, but it's not

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Speaker 8: all clear. Skies ahead. GfK's consumer Insights director Neil Bellameny

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Speaker 8: warns improvements in sentiment remain fragile, with quote clouds on

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Speaker 8: the horizon in the form of inflation and rising unemployment

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Speaker 8: in London. Chris Pitt Bloomberg Radio, those are your top

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Speaker 8: stories on the markets. We're looking at Eurostock's fifty futures

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Speaker 8: down slightly this morning, foot Sea one hundred futures are

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Speaker 8: up slightly ahead of drone pal speech later today. The

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Speaker 8: Bloomberg Dollar Spot Index is speaking were respot is up

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Speaker 8: by a tenth of one percent. The tenure treasure yield

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Speaker 8: helding steady at four point three three percent. Wall Street

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Speaker 8: futures are looking flatter a little lower for Nasdaq futures

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Speaker 8: at the moment. In a moment, we'll bring you more

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Speaker 8: on the default warnings that are beginning to pile up

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Speaker 8: on the private credit market, plus why Germans are increasingly

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Speaker 8: embracing investing in the stock market. But first, another story

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Speaker 8: that I wanted to mention this morning. Are you hearing

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Speaker 8: the word clanker more at the If not, you might

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Speaker 8: be about to Bloomberg copinians. Katherine Thorbeck has been writing

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Speaker 8: about the word some of you might recognize from Star wars,

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Speaker 8: and how it's been picked up by younger Internet users

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Speaker 8: as a blanket derogatory term for artificial intelligence and robots.

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Speaker 8: It's been used to express frustration with things like AI

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Speaker 8: slop that's turning up everywhere online, or the hallucinations the

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Speaker 8: technology can create. It's now showing up in search trends,

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Speaker 8: and Catherine expects that it may well end up being

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Speaker 8: one of those words of the year when we get

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Speaker 8: the new lists from dictionaries. It's also a good illustration

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Speaker 8: of how the extreme enthusiasm for AI from some isn't

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Speaker 8: that widely held in business. For example, a McKinsey survey

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Speaker 8: show that ninety five percent of firms haven't seen returns

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Speaker 8: on their investments in the technology. For consumers, mentioning AI

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Speaker 8: is proving a turn off for some shoppers, and polls

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Speaker 8: show people are worried about the effects the technology could have.

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Speaker 8: There's no doubt the potential for what AI can do

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Speaker 8: is huge, but Catherine makes a good point that AI

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Speaker 8: needs public trust to succeed, and if teenagers are already

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Speaker 8: making fun of it online, maybe that's a sign that

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Speaker 8: tech companies need to do a little bit more to

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Speaker 8: focus on practical applications rather than just rhetorical ambitions. Maybe

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Speaker 8: it means AI won't take over everything after all, or

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Speaker 8: it'll just end up being the cranks versus the clankers.

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Speaker 8: You read the full story at Bloomberg dot com for

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Speaker 8: its lash opinion. Well, let's bring you more now in

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Speaker 8: our top story and the rising warnings of defaults in

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Speaker 8: the one point seven trillion dollars private credit market. Our

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Speaker 8: market support of Valerie title joins me now for more.

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Speaker 8: By their nature, it's even in the name, we have

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Speaker 8: less date on private markets than we do in public markets.

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Speaker 8: So how are we tracking this uptick in defaults and

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Speaker 8: how significant is it?

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Speaker 9: Look, this is really where it gets murkhy. The question

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Speaker 9: of how to track default is really almost have to

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Speaker 9: be taken on a case by case basis looking through

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Speaker 9: all of these private loans, because sometimes these loans are

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Speaker 9: basically restructured, which in a traditional corporate bond space, that

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Speaker 9: kind of restructuring would be classed as a default, but

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Speaker 9: not necessarily so.

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Speaker 4: In the private credit market.

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Speaker 9: These are things like deferring interest payments or perhaps selective

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Speaker 9: defaults like maturity extensions or any significant amendment activity. So

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Speaker 9: where as on the surface the official default rate for

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Speaker 9: private credit stands around two to three percent. That's data

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Speaker 9: compiled by JP Morgan. In reality, JP Morgan also warns

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Speaker 9: that could be something much higher, and they actually penciled

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Speaker 9: in five point four percent as the default rate if

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Speaker 9: they included some of these quote unquote selective defaults, and

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Speaker 9: that would put private credit more in line in terms

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Speaker 9: of the default rate with the syndicated loan market. That's

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Speaker 9: something that's done via traditional banks. We also had some

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Speaker 9: data from SMP Global and from Lincoln International that showed

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Speaker 9: that default rates in the second quarter of this year

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Speaker 9: could have been as high as six percent, and that's

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Speaker 9: up from what they calculated as a two percent run

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Speaker 9: rate when everything was going great back in twenty twenty one,

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Speaker 9: when this market was originally booming. And really, to complicate

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Speaker 9: this all further, a lot of these borrowers are not

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Speaker 9: really monitored by credit agencies or advisory firms, so it's

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Speaker 9: really hard to get a sense. But it does seem

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Speaker 9: to be that there is some data from a few

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Speaker 9: research analysts out there. They're showing that the selective defaults,

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Speaker 9: if you include them into the official rate, it could

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Speaker 9: be much higher.

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Speaker 1: Okay, fascinating a story that we've been reporting on this morning.

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Speaker 1: But let's turn to the main event of the day

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Speaker 1: for markets. They speech by Jerome Powell. As Jackson holl

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Speaker 1: what are we expecting?

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Speaker 9: I'm already sweating about what's going to happen this afternoon.

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Speaker 9: Let me tell you, the market is really wanting to

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Speaker 9: hear something dubvish from Jerome Powell. They want him to

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Speaker 9: somehow mention that the labor market has been weakening and

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Speaker 9: signal a September cut That would definitely spur a bond

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Speaker 9: market rally, spur an equity market.

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Speaker 8: Rally off the back of that.

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Speaker 9: The risk is, though, for at least for what's priced in,

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Speaker 9: is that he does not change his tune on the

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Speaker 9: labor market. Instead maybe focuses on some very nuanced monetary

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Speaker 9: policy framework. One thing that our own analog has been

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Speaker 9: writing about is he could draw attention to dropping the

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Speaker 9: flexible average inflation targeting framework, which would be slightly hawkish.

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Speaker 9: This is something that they used almost to look through

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Speaker 9: inflation back in twenty twenty one when it was first rising,

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Speaker 9: and then on the flip side, he could really say nothing.

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Speaker 9: He could say that they're data dependent There's still another

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Speaker 9: CPI print and another payroll print before the FED convens

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Speaker 9: again in mid September, but the market is really hoping

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Speaker 9: for something duvish here. We have seen odds for this

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Speaker 9: rate cut in September been paired back quite substantially this week.

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Speaker 9: After pricing in one hundred percent last week, we're now

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Speaker 9: down to seventy five percent, So the market has already

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Speaker 9: been rethinking how they've been pricing in these Fed cuts.

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Speaker 9: We also had a round of data yesterday that was

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Speaker 9: fairly mixed. Jobless claims rose, but then we had really

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Speaker 9: good PMI data out of the US as well, So

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Speaker 9: it seems mixed across many pictures. But I mean, I'm

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Speaker 9: holding my breath for three PM.

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Speaker 1: Stay with us. More from Bloomberg Daybreak Europe coming up

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Speaker 1: after this.

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Speaker 4: Now.

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Speaker 1: Germans have long preferred the safety of bank accounts to

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Speaker 1: the risk of the stock market, but that tied here

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Speaker 1: is to be turning as a German equities market booms

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Speaker 1: for a third year running. A survey by black Rock

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Speaker 1: has found that more than three million Germans have begun

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Speaker 1: investing in stocks over the past three years. That's the

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Speaker 1: biggest increase seen in Europe after Britain. Our senior market's editor,

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Speaker 1: Phil Tarapheno joins me now for more felt good morning.

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Speaker 1: What is drawing Germans to the stock market now, Well.

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Speaker 10: You know, there is the bull market, which you mentioned,

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Speaker 10: and that always attracts traders when they see prices going up.

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Speaker 10: But that's bull markets come and go. And there's a

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Speaker 10: longer term trend at work here too, which is Germany,

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Speaker 10: like a lot of countries, is facing an issue of

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Speaker 10: they have an aging workforce. They have this pay as

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Speaker 10: you go pension system, and Germans are realizing the pension

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Speaker 10: that they're counting on may not be there when they retire.

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Speaker 10: There are fewer and fewer workers providing pension payments for

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Speaker 10: a larger group of retirees. You know, you look out

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Speaker 10: long enough and that system becomes unsustainable. And there's a

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Speaker 10: big political debate in Germany about what to do about

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Speaker 10: this right now. But a lot of Germans are taking

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Speaker 10: matters into their own hands and saying, look, I need

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Speaker 10: to set some more money aside, and it's not going

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Speaker 10: to be enough if I just put it in a

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Speaker 10: bank account.

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Speaker 4: So I'm going to start investing in the stock market.

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Speaker 1: So what does this mean then for the market and

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Speaker 1: for the broader German economy that more people are willing

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Speaker 1: to make this change.

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Speaker 4: Well, you know, it's an important thing.

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Speaker 10: I mean, there's this been this long running trend in

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Speaker 10: Europe of people generally take less risk and invest less

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Speaker 10: than in the US.

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Speaker 4: And that shows up in all sorts of ways.

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Speaker 10: It's difficult, relatively difficult to finance a startup in Europe

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Speaker 10: and in a country like Germany.

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Speaker 4: So if you have more people putting money into.

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Speaker 10: Risky assets, that just as an effect, a ripple effect

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Speaker 10: through the economy. It becomes easier to raise money, it

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Speaker 10: becomes easier to build that hot new startup or you know,

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Speaker 10: finance a young growing company. And you know, Germany big

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Speaker 10: powerful economy, but it is not a dynamic economy. It's

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Speaker 10: barely grown or has has been shrinking for the past

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Speaker 10: several years. And so if you get more financing and

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Speaker 10: more risk taking, that should be good for the economy.

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Speaker 1: How big is the retail trading market in Germany now

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Speaker 1: or so, how does it compare to other countries? And

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Speaker 1: is this the market that there's more room for expansion?

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Speaker 10: There's absolutely more room for expansion. You know, institutional investors

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Speaker 10: have long been a big player in Germany, but individuals

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Speaker 10: it's a tiny fraction in the US I think, you know,

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Speaker 10: like something like forty two of financial assets are in stocks.

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Speaker 10: In Germany that's around twenty percent. So you see, if

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Speaker 10: Germans were to put you know, say an equivalent of

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Speaker 10: the US or even France of their assets into.

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Speaker 4: The stock market, that makes a huge effect.

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Speaker 10: We saw one estimate from a think tank und by

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Speaker 10: the finance industry that says there'd be an extra one

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Speaker 10: point one trillion available for equity financing if Germans invested

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Speaker 10: even to the level that the French do, So that

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Speaker 10: makes a big difference. The German stock market is about

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Speaker 10: two point six trillion in market value right now, so

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Speaker 10: that would really move the needle if Germans as a

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Speaker 10: whole invested a lot more in the stock market.

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Speaker 1: So why are these investors pushing their money there? What

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Speaker 1: stocks are they buying?

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Speaker 10: Yeah, that's one thing that's a bit of a problem

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Speaker 10: right now. The US stock market has such a magnetic

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Speaker 10: pull on the rest of the world that we talked

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Speaker 10: to e Toro, the online broker, and they said, of

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Speaker 10: the ten most owned stocks in German accounts this year,

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Speaker 10: nine of them are American and they're the ones you'd expect,

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Speaker 10: Tesla and Microsoft and the big tech stocks. There is

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Speaker 10: exactly one German stock among the top ten, and that's

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Speaker 10: Ryan Mattal, the big defense contractor. But you can sense,

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Speaker 10: at least anecdotally from the people we've spoken to, that's

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Speaker 10: starting to change. They're looking at these stocks like the

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Speaker 10: German defense stocks have been on fire this year. They're

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Speaker 10: putting up returns like the tech stocks one hundred percent,

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Speaker 10: two hundred percent, and Germans are saying, hey, look at that,

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Speaker 10: I would like to get some of that.

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Speaker 4: And so there is starting to be a shift.

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Speaker 10: You you know, the question is does that hold up

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Speaker 10: if there's a bear market to people just walk away

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Speaker 10: and not come back for a decade or whatever. But

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Speaker 10: for now, at least they're embracing it and they're starting

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Speaker 10: to buy more German stocks.

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