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

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Speaker 2: This is the Bloomberg Day Bakup podcast, available every morning

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

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Speaker 2: fourth of September in London.

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Speaker 3: I'm Caroline Hepcap and.

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Speaker 4: I'm Stephen Carroll. Coming up today. Markets tumble amid renewed

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Speaker 4: concerns over AI and signs of weakness in the US economy.

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Speaker 2: The US Justice Department looks for evidence of anti competitive

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Speaker 2: practices by Nvidia as the chip maker's shares suffer a

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Speaker 2: record setting route.

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Speaker 4: Plus the risks facing the world's regional lenders. Banking's multi

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Speaker 4: trillion dollar week spot faces a global reckoning. We have

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Speaker 4: a special report.

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Speaker 3: Let's start with a roundup of our top stories.

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Speaker 4: Stocks in Asia are slumping by the most since this

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Speaker 4: summer's route, tracking a tech led selloff. On Wall Street,

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Speaker 4: the Mscirish Pacific Index is down over two percent, with

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Speaker 4: semiconductor stocks including TSA, CNSKHNEX, tumbling amid renewed concerns over

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Speaker 4: the artificial intelligence frenzy. September is a historically volatime month

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Speaker 4: for stocks. On Tuesday, the S and P five hundred

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Speaker 4: shed more than two percent. The Nasdaq closed down three

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Speaker 4: point two percent. The Tech index has had its worst

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Speaker 4: start to a September since two thousand and two.

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Speaker 2: Shares in in Vidia dropped by nine and a half percent,

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Speaker 2: wiping two hundred and seventy nine billion dollars of its value,

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Speaker 2: a record one day loss for a US stock. On Tuesday,

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Speaker 2: as markets in America close, it emerged that the US

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Speaker 2: Justice Department had sent subpoenas to Nvidia and other companies

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Speaker 2: as it seeks evidence that the chip maker violated competition laws.

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Speaker 2: Sources tell Bloomberg that officials are concerned that in Nvidia

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Speaker 2: is making it harder to switch to other suppliers and

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Speaker 2: penalizes buyers that don't exclusively use its AI chips. Our

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Speaker 2: technology reporter Ian King broke that story.

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Speaker 5: We've reported a while ago that there was questionnaire asgoing

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Speaker 5: out that they were just sort of asking customers, asking competitors,

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Speaker 5: you know, what was going on in the market. The

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Speaker 5: fact that this has gone to the subpoena stage, the

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Speaker 5: legally enforceable request for information, is usually a sign of

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Speaker 5: an escalation.

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Speaker 2: In response to questions about the probe, in Vidia said

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Speaker 2: that its market dominance stems from the quality of its products,

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Speaker 2: which deliver faster performance in video. Shares are now down

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Speaker 2: fourteen percent in three sessions since it reported earnings that

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Speaker 2: failed to live up to lofty expectations.

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Speaker 4: The broad risk AFT mood was also driven by a

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Speaker 4: closely watched US manufacturing gauge. The ISM Manufacturing Activity Gage

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Speaker 4: shrank in August for a fifth month in a row.

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Speaker 4: Timoth of Fiora's chair of the survey committee, you know.

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Speaker 6: We came in a little bit lighter than people thought.

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Speaker 6: We're a little bit better than last month. But if

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Speaker 6: you look at the three elements demand, output, and inputs,

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Speaker 6: the biggest reason for the lack of slowing down even

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Speaker 6: further as a fact that our manufacturing inventory number came

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Speaker 6: up surprisingly.

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Speaker 4: That's Timothy Feuer from ISM. As the economic picture in

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Speaker 4: the US darkens, the odds of an outsized FED cut

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Speaker 4: at the September meeting are increasing. Markets are now pricing

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Speaker 4: in a thirty seven percent chance of a fifty basis

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Speaker 4: point cut from the Federal Reserve this month. That's up

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Speaker 4: from thirty two percent at the end of last week.

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Speaker 2: The price of oil is also pushing lower, after a

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Speaker 2: loss of almost five percent on Tuesday, The moves come

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Speaker 2: as the possible easing of political unrest in Libya shifted

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Speaker 2: focus back to OPEC plus's plan to restore production, while

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Speaker 2: demand concerns also persists, but Jeff Curry, Carlile's chief strategy officer,

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Speaker 2: says that that concern is overstated.

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Speaker 7: The data disappointment was a PMI that was expected to

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Speaker 7: be forty nine point five and came out at forty.

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Speaker 6: Nine point one.

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Speaker 7: Does that justify the oil market being eddy record short.

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Speaker 7: Absolutely not. It's not a collapse that would justify the

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Speaker 7: market being as short today as it was in the

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Speaker 7: global financial crisis.

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Speaker 2: Of Oh wait, Carlles Jeff Curry, speaking there, oil has

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Speaker 2: now wiped out all of this year's gains on worries

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Speaker 2: about the economic outlook in China, the world's biggest crude importer.

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Speaker 2: Investors are also watching monthly jobs data due out on

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Speaker 2: Friday that could offer more insights on the federal reserves

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Speaker 2: path forward.

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Speaker 3: On US interest rates.

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Speaker 4: They're increasing concerns about the future of regional and smaller

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Speaker 4: banks as they face risks from higher interest rates, exposure

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Speaker 4: to commercial real estate, and shaky economic conditions. Bloombrooks Chris

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Speaker 4: pet has more.

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Speaker 8: The collapse of Silicon Valley Bank last year exposed the

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Speaker 8: risks facing small and medium sized lenders, but high interest

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Speaker 8: rates and an uncertain economic outlook adding to regulators concerns.

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Speaker 8: The europe and Banking Authority is among the watchdogs that

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Speaker 8: has raised concerns about small lenders exposure to commercial real estate.

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Speaker 8: Weaker governance and risk management have also been flagged as

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Speaker 8: common issues. It leaves a dilemma for regulators on how

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Speaker 8: to supervise them effectively without overburdening a sector that provides

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Speaker 8: crucial funding so consumers and business in London. Chris Pitt

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Speaker 8: Bloomberg Radio.

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Speaker 2: The German government is planning to cut its stake in

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Speaker 2: Commerzbank after a recent share rally. It currently owns a

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Speaker 2: s take of around sixteen and a half percent, which

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Speaker 2: is worth roughly two and a half billion euros. Bloomberg

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Speaker 2: understands that the government doesn't intend to sell its entire

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Speaker 2: stake for now, and it's not known when the transaction

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Speaker 2: will take place. Germany joins other European neighbors in offloading

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Speaker 2: shares in banks acquired during the financial crisis, after the

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Speaker 2: region's lenders were bolstered by higher interest.

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Speaker 4: Rates plans to scrap the UK's non tax regime could

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Speaker 4: cost a billion pounds a year, according to new data

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Speaker 4: from Oxford Economics. Bloomberoks two at a bio as the story.

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Speaker 9: Back in March, budget officials estimated changes to the way

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Speaker 9: wealthy foreigners pay tax would raise three billion pounds a year. Now,

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Speaker 9: a new labor government plans to go even further, subjecting

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Speaker 9: overseas assets to British inheritance tax if the owner has

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Speaker 9: lived here for more than ten years. But instead of

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Speaker 9: raising money, some researchers say the changes will come at

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Speaker 9: a cost as those with non dom status flee the country.

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Speaker 9: A survey by Oxford Economics found over eighty percent of

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Speaker 9: them un likely to leave because of the measures. The

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Speaker 9: new rules for both foreign income and inheritance tax are

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Speaker 9: due to start in April twenty twenty five in London.

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Speaker 1: Do you add a bio Bloomberg.

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Speaker 4: Radio Now in a moment, we'll bring you more on

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Speaker 4: the market sell off, plus dig into those concerns over

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Speaker 4: the risks facing smaller and medium sized lenders in many

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Speaker 4: parts of the world. But first, on a day when

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Speaker 4: we're talking about the huge slumps on stock markets, we

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Speaker 4: did catch the attention of a stock that is doing

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Speaker 4: well at least perhaps if you look over the year

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Speaker 4: to date level, could it be dubbed the Hello Kitty rally.

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Speaker 4: This is Sanrio, which owns the Hello Kitty brand. Its

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Speaker 4: shares are up ninety one percent this year despite being

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Speaker 4: down by one percent in a market that's selling off

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Speaker 4: as we say today, and this is actually part of

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Speaker 4: a broader trend around entertainment companies in Japan which are

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Speaker 4: seeing their performance very closely linked to the fact that

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Speaker 4: this summer has been very wet with torrential rainstorms and

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Speaker 4: very hot, which means that people don't want to be outside.

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Speaker 4: If you look at the theme park sectors our colleagues

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Speaker 4: have been doing. When you see the company that operates

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Speaker 4: the Tokyo Disney Resort, which is mostly outdoors, the company

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Speaker 4: that operates that Oriental land shares down twenty five percent

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Speaker 4: this year. Sanrio's parks, though they've two of them in Tokyo,

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Speaker 4: are indoors and they're doing very well. Similarly, for another

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Speaker 4: major company, Round One, that operates arcades and bowling alleys,

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Speaker 4: their shares up fifty six percent. Entertaining companies might need

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Speaker 4: to provide a few umbrellas try and get more people

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Speaker 4: in the door.

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Speaker 3: Familiar to actually for anyone in London.

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Speaker 2: Well, look, it's also the weird effects and the widespread

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Speaker 2: effects of course of the changing climate. No, a really

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Speaker 2: interesting story to pick up on.

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Speaker 4: Well, let's get back to big moves on markets today,

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Speaker 4: the broad sell off and Asian equities. After we saw

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Speaker 4: AI leader in Vidia suffering that record stock route on

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Speaker 4: trading on Tuesday, the nasdack down three percent, oil selling

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Speaker 4: off as well joining US now Bloomberg's Critti Guptaho has

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Speaker 4: been keeping across all the market developments for US and

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Speaker 4: on Bloomberg Television. Crazy. Let's talk about the trigger for

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Speaker 4: this first, Why the Asian stock drop, given that the

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Speaker 4: Nvidia route was down to an issue quite specific to

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Speaker 4: the business.

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Speaker 1: Yeah, this feels like a little bit of a continuation

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Speaker 1: of yesterday's trade. And if I can kind of rewind

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Speaker 1: even further past, what we're seeing in the Asian session

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Speaker 1: is that even in a yesterday's session, we did start

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Speaker 1: to see even Nasdaq futures ahead of the European pre

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Speaker 1: market take a leg lower when European markets were actually

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Speaker 1: initially opening in the green. So that already shows that

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Speaker 1: there was a town set here that when Americans come

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Speaker 1: back for a labor day there would be some sort

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Speaker 1: of sell off, and that's exactly what we saw. Fast

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Speaker 1: forward to the kind of the Asian market playing a

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Speaker 1: little bit of catch up here because you saw underperformance

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Speaker 1: in the US yesterday as well in this particular sector.

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Speaker 1: Not to this extent, however, and this is where you're

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Speaker 1: starting to see the difference. So, and this is crucial

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Speaker 1: because there's a couple of different factors. Yes, Nvidia is

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Speaker 1: a part of it, and yes, the DOJ anti trust

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Speaker 1: probe is certainly weighing on the stock in terms of sentiment.

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Speaker 1: But historically, when you look at tech stocks, when the DOJ,

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Speaker 1: the FDC, basically any kind of legal American regulatory system

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Speaker 1: does probe an a tech company, you don't actually see

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Speaker 1: a big impact in the stock. And the reason for

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Speaker 1: that is a precedent that goes I'm going to not

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Speaker 1: nerd out too much here, but a precedent that goes

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Speaker 1: back to nineteen ninety nine when Microsoft was dealing with

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Speaker 1: an anti trust probe and was able to beat it,

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Speaker 1: kind of beat all the cases. So the stock would

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Speaker 1: drop in response to all these legal kind of moves

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Speaker 1: from the government, and then Microsoft was able to supersede it.

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Speaker 1: So one of the criticisms of that was you don't

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Speaker 1: trade off of legal drama that can last over, you know,

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Speaker 1: three years or or more, and three years for the

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Speaker 1: case of Microsoft. So there is kind of a an

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Speaker 1: underlying current that when there's regulatory action involved from the

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Speaker 1: US on a big tech company, you don't often trade

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Speaker 1: off of it. That being said, there's already been a

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Speaker 1: lot of positioning for a droppin Nvidia to begin with,

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Speaker 1: so that is kind of piling up on top of

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Speaker 1: the reasons. You also got m manufacturing data in the States,

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Speaker 1: which came in pretty poorly. Remember it only makes up

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Speaker 1: about somewhere between twenty to thirty percent of the American economy.

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Speaker 1: It was already a sector of weakness. It's not a

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Speaker 1: sector of the economy that Jaypoller necessarily cites in some

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Speaker 1: of his reasoning around monetary policy, but it is something

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Speaker 1: to be quite aware of, given that there is there

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Speaker 1: is concern around that sector.

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Speaker 2: Yeah, I mean at Jackson Hoe PW you know, seem

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Speaker 2: to be indicating that a rate cut was coming. But

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Speaker 2: now the debate is around twenty five basis points, fifty

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Speaker 2: basis points, And there's so much data, isn't there between

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Speaker 2: now and when we get the FED meeting? So the

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Speaker 2: ism you mentioned, but then also the monthly jobs data

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Speaker 2: on Friday, how much do you think that could add

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Speaker 2: to this kind of risk of jittery move mood a

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Speaker 2: couple of weeks ahead of the next BED meeting.

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Speaker 1: I mean, I think you're already seeing the jitters as

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Speaker 1: actually show up. But remember seasonality is a factor as well,

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Speaker 1: So there's going to be these jitters between now and

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Speaker 1: the next payoff report and arguably after as well, because

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Speaker 1: September is a seasonally negative month, and more so in

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Speaker 1: election years. In fact, Renaissance Macro just put out data

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Speaker 1: that September already tends to be quite weak. August as well,

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Speaker 1: but September, more so as an election years, is almost

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Speaker 1: guaranteed a negative loss when you look at a guy

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Speaker 1: for history. Of course, the famous thing on Wall Street

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Speaker 1: is past performance is never a representative of what you

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Speaker 1: of future returns. But markets certainly seemed to act that way.

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Speaker 1: But absolutely you're right that payrolls is important, given the

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Speaker 1: sensitivity that the last payrolls number created in the.

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Speaker 4: Markets just briefly crazy on oil prices as well, Big

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Speaker 4: movery yesterday down five percent. We're looking at further weakness today.

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Speaker 4: I mean, what's the boat of significance of that.

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Speaker 1: This is a big deal in terms of risk sentiment.

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Speaker 1: You're now looking at a seventy three handle on Brent crude.

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Speaker 1: But it's also one we're starting to see geopolitics play

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Speaker 1: a bigger role. Remember when you see a move somewhere

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Speaker 1: between four to six percent on Brent crude, you know

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Speaker 1: that's the geopolitical premium getting baked in. So what's going

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Speaker 1: on in Libya, Nigeria? It is actually moving the markets.

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Speaker 2: Yeah, okay, we're going to get to that a bit

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Speaker 2: later on this morning. Critti thank you so much for

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Speaker 2: being with us. Bloomberg anchor, Critti Gupta. Then on the

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Speaker 2: latest when it comes to the markets moving this morning.

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Speaker 4: Now we're going to focus in on regional banks, be

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Speaker 4: it Metro Bank here in the UK, Milans BFF Bank,

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Speaker 4: or the agricultural lender norn Chugenbank in Japan. They've all

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Speaker 4: been facing stress recently. Although there's some concern that these

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Speaker 4: smaller lenders, which are the bedrock of regional economies around

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Speaker 4: the world could face more turbulence ahead. Joining US now

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Speaker 4: is Bloomberg Senior finance reporter Laura Noonan for more on

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Speaker 4: this story. Laura, good morning. What are the common concerns

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Speaker 4: about these smaller banks.

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Speaker 10: Yeah, so these banks, there's a vast variety of different

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Speaker 10: kinds of banks of fall below the biggest banks are

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Speaker 10: our listers or will be very familiar with. So one

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Speaker 10: of the things is they tend to be more exposed

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Speaker 10: to interest rate changes, and some of the larger banks

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Speaker 10: because their business models are less diversified, so in interest

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Speaker 10: rates move, they are more likely to be caught off

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Speaker 10: guarden to take losses. And we saw that there with

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Speaker 10: Silicon Valley, we saw it with the Japanese bank. We're

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Speaker 10: seeing with other banks. They also tend to be heavily

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Speaker 10: linked to their domestic economies or to their local economies,

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Speaker 10: and in particular to real estate and in some cases

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Speaker 10: to commercial real estates, which our regular listeners will know

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Speaker 10: has been undergoing a lot of different stresses recently. The

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Speaker 10: other thing is that even though big banks were at

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Speaker 10: the heart of the last financial crisis, regulators still generally

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Speaker 10: tend to think that bigger is better. Bigger is safer,

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Speaker 10: and therefore some of the rules which have come in,

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Speaker 10: and they do impose a lot of different different burdens

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Speaker 10: and all kinds of banks. They hit smaller banks disproportionately

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Speaker 10: because they just don't have the infrastructure to implement all

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Speaker 10: of these rules in a cost to effective ways that

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Speaker 10: the costs are increasing for them. So those are all

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Speaker 10: kind of headwinds that I think banks below the top

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Speaker 10: tier are facing right across the world.

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Speaker 3: Laura.

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Speaker 2: In your reporting, you've mentioned a number of recent bank

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Speaker 2: crises that have raised red flags. Can you give us

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Speaker 2: us an example or two?

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Speaker 10: Sure? So, I think there has been a lot of action.

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Speaker 10: In Italy, there's been concerns about some of the smaller

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Speaker 10: banks not taking not basically being active enough in recognizing

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Speaker 10: loan losses. The Bank of Italy has called them out

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Speaker 10: for that. One of the smaller lenders, BFF, was actually

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Speaker 10: temporarily banned from making sure that Hulder payouts because of that,

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Speaker 10: because they have been classifying bad loans as being not

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Speaker 10: bad loans or good loans. We've also seen China, there's

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Speaker 10: been a sorry India, there's been a number of small

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Speaker 10: banks to hand back their licenses because they're not making

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Speaker 10: enough money. In the US, I think listeners will be

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Speaker 10: familiar with the struggles with the mid tier banks there.

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Speaker 10: In the UK last year we had the issue with

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Speaker 10: one of what the kind of postal shattle four challenger banks,

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Speaker 10: Metro Bank, which hit a lot of turbulence when it

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Speaker 10: wasn't able to get the regulatory relief that bigger banks

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Speaker 10: have in which it had been betting on. So I

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Speaker 10: think we're seeing a lot of different canaries in the

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Speaker 10: co mines in different countries and different regions, and I

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Speaker 10: think it's that's why regulators are looking at this area

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Speaker 10: more closely.

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Speaker 4: How are regulators approaching this, Laura, because it's a concern

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Speaker 4: about obviously regulating these banks correctly, but not overburdening them

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Speaker 4: at the same time.

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Speaker 10: Yeah, it's a difficult one to straddle because regulators are

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Speaker 10: aware that these banks are the bedrock of many communities.

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Speaker 10: As you say, they do have information that the large

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Speaker 10: banks just don't have because they live and breathe in

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Speaker 10: the communities that they lend you often, so the archoldric

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Speaker 10: into of that. It's also very difficult. It's much easier

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Speaker 10: to properly supervise, so I would say supervisor rather than regulate.

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Speaker 10: But you can properly supervise one massive bank much more

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Speaker 10: easily than you can supervise the risk, the governance and

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Speaker 10: controls of one Pasants Morner Banks, So it is genuinely hard.

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Speaker 4: This is Bloomberg Daybreak Europe, your morning brief on the

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