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

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Speaker 2: This is the Bloomberg Day BAQ podcast. Good morning, It's Thursday,

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Speaker 2: the fifth of February. I'm Caroline Hepca in London and.

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Speaker 1: I'm Stephen Carolin Brussels. Coming up today. Growing fears over

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Speaker 1: how AI could up end business models rip through global

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Speaker 1: markets for a third day in a trillion dollar tech

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Speaker 1: sell off.

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Speaker 2: UK Prime Minister Kiss Starmer is forced to climb down

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Speaker 2: and release documents relating to his appointment of Peter Mandelsson

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Speaker 2: as US ambassador.

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Speaker 1: Plus how a group of puzzle loving mathletes in Prague

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Speaker 1: are using sci fi inspired trading to dominate Europe's most

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Speaker 1: volatile power market.

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

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Speaker 1: AI's potential to change business models large and small is

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Speaker 1: driving a trillion dollar sell off in stocks and bonds

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Speaker 1: and loans of companies. The route was first sparked by

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Speaker 1: Anthropics release of a new two for legal Work earlier

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Speaker 1: this week. The move ignited fears across markets that AI

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Speaker 1: leaders will overtake established industry players and innovation sooner rather

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Speaker 1: than later, and in a confusing mix of market signals.

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Speaker 1: Even companies long seen as the prime beneficiaries of the

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Speaker 1: AI boom are showing signs of fatigue. In its latest

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Speaker 1: earnings report, Alphabet topped projections for quarterly revenue, but said

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Speaker 1: capital spending on AI will be significantly higher than anticipated.

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Speaker 1: CEOs under pitch I says the money will deliver a

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Speaker 1: returnal investment.

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Speaker 4: Revenue from AI solutions built by our partners increased nearly

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Speaker 4: three hundred percent year over year, and commitments from our

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Speaker 4: top fifteen software partners grew more than sixteen x year

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Speaker 4: over year.

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Speaker 1: Center Pitcheye, speaking there as the Google parents, said that

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Speaker 1: capital expenditure could come close to one hundred and eighty

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Speaker 1: five billion dollars this year, compared with just under one

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Speaker 1: hundred and twenty billion dollars that analysts had expected. I'll

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Speaker 1: Tabet shares fluctuated and extended trading following the report.

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Speaker 2: The price of silver has plunged by as much as

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Speaker 2: seventeen percent today after a two day recovery. Silver prize

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Speaker 2: has hit an all time high in late January of

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Speaker 2: more than one hundred and twenty dollars an ounce. Since then, though,

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Speaker 2: silver has lost more than a third of its value

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Speaker 2: and is trading at around seventy five dollars. The precious

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Speaker 2: metal rally last month was driven by speculative leveraged bets,

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Speaker 2: geopolitical upheaval and concerns over fed independence in the UK.

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Speaker 1: Kir Starmer's position is in doubt following the scrutiny of

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Speaker 1: the appointment of Peter Mandelsson as UK ambassador to the

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Speaker 1: US and his relationship with Jeffrey Epstein. The Prime Minister

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Speaker 1: is facing backlash from his own party members after he

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Speaker 1: struggled to answer questions from Opposition leader kemmy Badenoch about

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Speaker 1: his knowledge of Epstein and Mandelsson's relationship. Speaking in Parliament yesterday,

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Speaker 1: Starmer maintained he was not warned of the extent of wrongdoing.

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Speaker 5: Madlsson betrayed our country, our parliament and my party. Mister Speaker,

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Speaker 5: he lied repeatedly to my team when asked about his

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Speaker 5: relationship with Epstein before and during his tenure as ambassador.

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Speaker 1: K Starmer, speaking during Prime Minister's questions or he was

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Speaker 1: forced to acknowledge that the material used to vest Mandlsson

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Speaker 1: did contain details of Mandalsson's dealings with Epstein, Andp's voted

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Speaker 1: to release all documents related to Mandelson's appointment as an ambassador.

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Speaker 1: They'll be reviewed by the cross party Intelligence and Security Committee.

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Speaker 2: Now. The Bank of England is widely expected to leave

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Speaker 2: interest rates on whold today as it waits for more

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Speaker 2: evidence that inflation is under control. Bloomakes You and Potts

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Speaker 2: has a preview.

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Speaker 6: Just one of thirty two economists in Bloomberg survey expects

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Speaker 6: the rake cut today. The overwhelming consensus is that the

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Speaker 6: UK SPASE eight will remain unchained at three point seventy

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Speaker 6: five percent ahead of the twelve PM announcement. Rate setters

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Speaker 6: will be weighing the contradictory problems of above target inflation

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Speaker 6: and growing concerns about the labor market with unemployment now

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Speaker 6: above five percent. But on productivity there could finally be

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Speaker 6: some good news. Speaking to Bloomberg's scianists say that headline

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Speaker 6: productivity estimates may be masking a recent resurgence driven by

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Speaker 6: the adoption of artificial intelligence. One economists from UBS Wealth

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Speaker 6: Management saying the UK and global economy are likely in

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Speaker 6: better shape than the media would have us believe. In London,

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Speaker 6: I'm uing pots to Bloomberg Radio.

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Speaker 1: The European Central Bank is also likely to keep interest

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Speaker 1: rates on hold for a fifth consecutive meeting. That's despite

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Speaker 1: geopolitical tensions and a stronger euro. All economists surveyed by

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Speaker 1: Bloomberg expect the deposit rate to be kept at two

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Speaker 1: percent as today's meeting. Investors analyst cy rates staying there

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Speaker 1: until the end of next year, with the chances of

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Speaker 1: a hike in twenty twenty six receding.

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Speaker 2: I've got some breaking news this hour. BNP Pariba has

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Speaker 2: reported unexpectedly high fourth quarter profit and raised some midterm

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Speaker 2: financial targets. So the French lender achieved net income of

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Speaker 2: two point nine seven billion euros in the three months

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Speaker 2: through to December. The firms also raised its target for

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Speaker 2: profitability for twenty twenty eight. Meanwhile, the Spanish lender BBVA

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Speaker 2: has reported fourth quarter profits of just over two and

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Speaker 2: a half billion euros, broadly in line with estimers. Net

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Speaker 2: interests income came in at over seven billion euros, with

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Speaker 2: some two hundred million euros ahead of expectations. Bbva's shares

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Speaker 2: have doubled over the last twelve months.

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Speaker 1: The biggest US lenders are pushing the European Union to

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Speaker 1: loosen its cap on banker bonuses their lobby incomes. As

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Speaker 1: the EU considers a wider set of reforms to boost

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Speaker 1: competitiveness In books. Tam Adebayo has the story.

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Speaker 7: The EU is accelerating a planned review of its banking

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Speaker 7: rule book after pressure from the States and for the

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Speaker 7: sector's biggest names. There's one item that's top of the agenda.

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Speaker 7: The likes of Goldman, Sachs and JP Morgan are pushing

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Speaker 7: for a loosening of banker bonus rules, which currently cap

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Speaker 7: payments at twice fixed salaries. But whilst the Association for

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Speaker 7: Financial Markets in Europe has put the issue on its

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Speaker 7: wish list of reforms, there is some pushback. Bloomberg understands

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Speaker 7: that insiders feel the change could come at the expense

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Speaker 7: of other measures like simplifying capital structure and reducing daily

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Speaker 7: regulatory burdens. In London, Tea at Bayo, Bloomberg Radio.

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Speaker 2: And those are our top stories for you this morning.

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Speaker 2: Looking at the markets, the tech sell off continues in Asia.

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Speaker 2: The MASCI Asia Pacific indexes down by one point three percent.

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Speaker 2: Gold and silver continue to decline. Gold is down by

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Speaker 2: one point two percent this morning. You've also got copper

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Speaker 2: down today on the LME, Bitcoin falling to a ten

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Speaker 2: month low in Asia, trading. Looking at stock futures for Europe,

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Speaker 2: we're also expecting a lower open here. We're down by

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Speaker 2: two tens of one percent. The Blue Big Dollar spot

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Speaker 2: indexes slightly firmer. The pound and the euro are both

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Speaker 2: lower this morning ahead of central bank rate decisions.

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Speaker 3: Those are the markets in.

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Speaker 1: A moment more and the continuing tech sell off that's

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Speaker 1: been deepening over AI disruption fears. Plus how a check

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Speaker 1: trading firm took inspiration from science fiction to dominate Europe's

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Speaker 1: most volatile power market. But another story that caught ari

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Speaker 1: and a lot of attention this morning as well. In

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Speaker 1: the UK, the bruising Prime Minister's questions for Kirs starmery yesterday.

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Speaker 2: Yeah, absolutely, MP's have voted for the government here in

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Speaker 2: Britain to disclose all the documents relating to Peter mandelson

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Speaker 2: appoint and his appointment as US ambassador. So Kis Starmer

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Speaker 2: had wanted to keep those documents confidential, arguing that there

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Speaker 2: were issues of national security, but instead they will now

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Speaker 2: go to this parliamentary cross party committee for review and

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Speaker 2: then presumably release. It's a major defeat for Kis Starmer

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Speaker 2: and that is the point. It shows the depth of

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Speaker 2: anger of his own MPs really about this whole issue

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Speaker 2: that has arisen because of Jeffrey Epstein and all of

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Speaker 2: those files that were released. It could perhaps eventually precipitate

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Speaker 2: a leadership challenge. We don't know, because it shows, really

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Speaker 2: or could show how much was known about Mandalson's relationship

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Speaker 2: with epscen or maybe more details before the decision was

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Speaker 2: made to appoint him as the UK's ambassador. So there

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Speaker 2: was a really dramatic moment yesterday in Parliament when Kenny

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Speaker 2: Badenot was asking the Prime Minister whether the official secret

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Speaker 2: vetting for Mandalson mentioned this ongoing relationship with Epstein, and

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Speaker 2: the Prime Minister applied at one point yes to stunned NPS.

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Speaker 2: He then went on to say that Mandelson though didn't

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Speaker 2: tell the truth when he was questioned.

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Speaker 8: Yeah.

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Speaker 1: Look, it's a huge political story in the UK and

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Speaker 1: I've been interested to read what Matthew Brooker has been

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Speaker 1: writing about this for Bloomberg Opinion, thinking about what the

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Speaker 1: bigger picture might be actually for the future of the

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Speaker 1: House of Lords. Will this finally prompt the long discussed

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Speaker 1: reform of how lords are appointed and vetted. Of course,

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Speaker 1: the vetting they're very much in focus for Peter Mandelson

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Speaker 1: as well, and whether or not this might see Labor

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Speaker 1: deliver on some of what it's promised in its manifesto

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Speaker 1: of being big changes for the upper house. I mean

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Speaker 1: Matthew Brooker's point, you know, seems to be much easier

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Speaker 1: to sack a prince than a lord at the moment.

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Speaker 1: As well. He makes quite a good argument for how

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Speaker 1: this could be done as well, and says that look,

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Speaker 1: you know, if you have an upper house that's unelected,

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Speaker 1: you need to have confidence and the people who are

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Speaker 1: in it. And if you don't have this sort of confidence,

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Speaker 1: then you know that's going to cause bigger questions about

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Speaker 1: the function and the value of the House of Lords.

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Speaker 2: Yeah, and I was really interested in his point that

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Speaker 2: Canada has an upper house that's based on the UK's,

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Speaker 2: but it's got this independent body that picks people to

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Speaker 2: go into that upper house. Who's saying, look, why isn't

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Speaker 2: that a model? I thought that it was a really

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Speaker 2: interesting point, and we'll put a link to that story

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Speaker 2: in our podcast show notes.

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Speaker 1: Well, let's get into the big market moving story that

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Speaker 1: sell off continuing for a third day today, inspired by

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Speaker 1: these fears over AI on the verge of up ending

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Speaker 1: business models for a wide range of companies. We've now

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Speaker 1: seen a trillion dollars wiped off software stocks as a

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Speaker 1: result of this. Matt Blox, I'm senior analysts at Bloomberg

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Speaker 1: Intelligence joins us now for more math. There have been

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Speaker 1: many AI driven selloffs since chat GPT went mainstream. Is

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Speaker 1: this the most significant one so far?

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Speaker 8: Yeah?

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Speaker 9: I think it is without question obviously probably one of

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Speaker 9: the other noteworthy ones that comes to mind as well.

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Speaker 9: You know, we heard about deep Seek. She kind of

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Speaker 9: really shook up the industry. But yeah, I think the

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Speaker 9: both the breadth and depth of the sell off and

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Speaker 9: the speed of it has just been quite breath shaking.

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Speaker 2: Really the Deep See moment, I mean, was that because

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Speaker 2: it was China versus the US that was the issue there,

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Speaker 2: wasn't it? And then it leads to the question about

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Speaker 2: whether the current sell off is an overreaction or not.

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Speaker 9: I think part of it was China US, but actually

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Speaker 9: part of that Deep Seek moment was actually quite similar

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Speaker 9: I think to what we're seeing now. Essentially, you know,

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Speaker 9: the deep Seek model purported to do what the developed

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Speaker 9: US market large language models we're doing, but massively reduced cost. Yeah, exactly,

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Speaker 9: hugely cheaper. And this was like, you know, wow, we

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Speaker 9: thought this was the new model, and actually maybe this

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Speaker 9: is the new model here. And I think that's exactly

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Speaker 9: what's happening here is that you know, even kind of

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Speaker 9: new generation software companies are potentially going to be usurped

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Speaker 9: by these AI developed AI tools, you know, And that's

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Speaker 9: really essentially what Anthropic has done. It said, Okay, we

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Speaker 9: started with Claude code, Claudes large language model and code.

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Speaker 9: Claud Code helps software developers to you know, completely reimagine

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Speaker 9: how I develop software for new programs, and that kind

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Speaker 9: of evolved into Clawed Cowork, which actually now is an

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Speaker 9: incredibly interesting and powerful add on to Excel, the most

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Speaker 9: popular bit of productivity software in the world, and as

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Speaker 9: usurped Microsoft's own co pilot potentially in that platform. And

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Speaker 9: now that's extended into the kind of legal tool you know,

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Speaker 9: seemingly needing almost you know, very very kind of little

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Speaker 9: human intervention to develop this code and providing a very

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Speaker 9: powerful tool. I think that's kind of what's kind of

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Speaker 9: really made people kind of you know, step back and rethink, wow,

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Speaker 9: you know, we thought we had this figured out and

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Speaker 9: maybe we don't. And the answer to that in the

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Speaker 9: short term, as it often is with markets, is let's

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Speaker 9: just sell everything and think about it and then step

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Speaker 9: back in once we have a new view about what

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Speaker 9: the future is and pick our new winners once we've

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Speaker 9: got that figured out.

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Speaker 1: This time around, as software stocks that are very much

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Speaker 1: in focus, but are there other sectors could be vulnerable

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Speaker 1: to this sort of investor pressure over AI in the future.

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Speaker 3: Yeah, exactly.

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Speaker 9: And obviously software has been the focus, but it has

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Speaker 9: hit other industries. You know, One notable one has been

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Speaker 9: the big advertising agencies. So if we look back to

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Speaker 9: Tuesday Publicist, which is one of the biggest and most

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Speaker 9: successful ad agencies, They've made a massive pivot towards technology

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Speaker 9: and AI, so were perceived to be leading this transition

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Speaker 9: and managing it really well. They reported really good results

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Speaker 9: and encouraging outlook, the whole ad agency group sell off,

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Speaker 9: you know, eight to ten percent that day, and I've

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Speaker 9: had further declines still because they are also perceived as

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Speaker 9: an industry that could be completely disrupted by AI. And

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Speaker 9: I think this whole kind of anthropic moment has again

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Speaker 9: led to kind of incremental concerns that the modern these businesses.

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Speaker 9: Yes we knew or exposed to it, but that seemed

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Speaker 9: to be managing that transition in a good way. Actually,

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Speaker 9: we need to go back and rethink that. So I

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Speaker 9: think anything that's kind of like a services based industry

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Speaker 9: from ad agency's, legal, accounting, consulting, financial advisory, all these

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Speaker 9: kind of human intensive service based industries potentially not going

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Speaker 9: to be untouched by this.

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Speaker 3: Yes, it's sort of an incredible moment.

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Speaker 2: Is it going to be a transition with AI or

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Speaker 2: just a rupture? I think investors are really kind of

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Speaker 2: contemplating this. Matt, thank you so much for your time today.

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Speaker 2: Matt Bloxham is Bloomberg's senior analyst with Bloomberg Intelligence.

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Speaker 3: Thank you for your time. Stay with us. More from

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Speaker 3: Bloomberg Daybaque coming up after this.

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Speaker 1: Now, a check trading firm has come from nowhere to

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Speaker 1: dominate Europe's most volatile power market. The trio behind Second

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Speaker 1: Foundation to inspiration from science fiction, hiring maths prodigies from

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Speaker 1: across Eastern Europe. Our energy reporter Eva Brendel joins us

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Speaker 1: now for more. Eva, good morning, great to have you

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Speaker 1: with us. How has Second Foundation become such an important player.

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Speaker 8: So the company operates on the ultrasure term market and

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Speaker 8: to be successful in this you have to use algorithmic trading,

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Speaker 8: and this is what they seem to be very good at.

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Speaker 8: They have built very sophisticated algorithms that can react to

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Speaker 8: the market in milliseconds. And to get good at this

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Speaker 8: sort of trading is the main strategy is to have

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Speaker 8: very smart employees who constantly can improve those algorithms. And

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Speaker 8: so they hire a lot of smart radios with a

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Speaker 8: special love for solving math riddles. And they even say

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Speaker 8: they have their most math Olympic medalists in Eastern Europe.

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Speaker 2: Wow, okay, so mass prodigies then are working for this company. Well,

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Speaker 2: then tell us a bit more about the inter day

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Speaker 2: power market that they operate in, the second foundation operates in,

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Speaker 2: and why it's such a lucrative space actually to use

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Speaker 2: all these people in.

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Speaker 8: So, the interjay power market has undergone a big change

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Speaker 8: in recent years, and this has to do with the

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Speaker 8: energy transition because as more renewables came into the system,

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Speaker 8: more volatility came to the market. And yeah, now it

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Speaker 8: is it's pretty hard to predict how windy it will

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Speaker 8: be or how much sun will shine that day, prices

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Speaker 8: can hugely swing. And yeah, on very windy sunny days

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Speaker 8: of the sea, prices will go negative or prices can

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Speaker 8: also jump very high up to one thousand euro pomega

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Speaker 8: what are when demand is high and it is also windless.

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Speaker 8: And this increased volatility has made the market much more

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Speaker 8: attractive for algorithmic traders who can react faster than anyone else.

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Speaker 1: Yeah, the co founders are fans of science fiction. How

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Speaker 1: has that influenced their business?

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Speaker 8: So, first of all, the company is named after the

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Speaker 8: second Foundation, this third book in Isaacs of Foundations Areas,

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Speaker 8: and every new employee gets a copy of that book.

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Speaker 8: And also they have other things named after science fiction books.

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Speaker 8: So their trading platform is called soft Hoham, named after

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Speaker 8: a supercomputer in the Three Body Problem. And also when

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Speaker 8: you visit their company's park office, all of their walls

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Speaker 8: areligned with bookshelves and you can guess what's in their

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Speaker 8: even more science fiction books.

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Speaker 3: Okay, so then what's next for the company.

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Speaker 8: The company now expands a battery business across Europe, and

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Speaker 8: they might at some point even beyond expand beyond energy.

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Speaker 8: So they share with me that they might go into

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Speaker 8: equity trading.

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Speaker 1: Next, this is Bloomberg Daybreak Europe, your morning brief on

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Speaker 1: the stories making news from London to Wall Street and beyond.

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Speaker 2: Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty.

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Speaker 3: I'm Caroline Hepka and.

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Speaker 1: I'm Stephen Carol. Join us again tomorrow morning for all

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