WEBVTT - Trillion-Dollar Tech Wipeout, Crisis Engulfs UK’s Starmer, Sci-Fi Power Traders

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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

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<v Speaker 2>the fifth of February. I'm Caroline Hepca in London and.

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<v Speaker 1>I'm Stephen Carolin Brussels. Coming up today. Growing fears over

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<v Speaker 1>how AI could up end business models rip through global

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<v Speaker 1>markets for a third day in a trillion dollar tech

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<v Speaker 1>sell off.

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<v Speaker 2>UK Prime Minister Kiss Starmer is forced to climb down

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<v Speaker 2>and release documents relating to his appointment of Peter Mandelsson

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<v Speaker 2>as US ambassador.

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<v Speaker 1>Plus how a group of puzzle loving mathletes in Prague

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<v Speaker 1>are using sci fi inspired trading to dominate Europe's most

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<v Speaker 1>volatile power market.

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<v Speaker 3>Let's start with the roundup of our top stories.

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<v Speaker 1>AI's potential to change business models large and small is

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<v Speaker 1>driving a trillion dollar sell off in stocks and bonds

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<v Speaker 1>and loans of companies. The route was first sparked by

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<v Speaker 1>Anthropics release of a new two for legal Work earlier

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<v Speaker 1>this week. The move ignited fears across markets that AI

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<v Speaker 1>leaders will overtake established industry players and innovation sooner rather

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<v Speaker 1>than later, and in a confusing mix of market signals.

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<v Speaker 1>Even companies long seen as the prime beneficiaries of the

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<v Speaker 1>AI boom are showing signs of fatigue. In its latest

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<v Speaker 1>earnings report, Alphabet topped projections for quarterly revenue, but said

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<v Speaker 1>capital spending on AI will be significantly higher than anticipated.

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<v Speaker 1>CEOs under pitch I says the money will deliver a

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<v Speaker 1>returnal investment.

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<v Speaker 4>Revenue from AI solutions built by our partners increased nearly

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<v Speaker 4>three hundred percent year over year, and commitments from our

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<v Speaker 4>top fifteen software partners grew more than sixteen x year

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<v Speaker 4>over year.

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<v Speaker 1>Center Pitcheye, speaking there as the Google parents, said that

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<v Speaker 1>capital expenditure could come close to one hundred and eighty

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<v Speaker 1>five billion dollars this year, compared with just under one

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<v Speaker 1>hundred and twenty billion dollars that analysts had expected. I'll

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<v Speaker 1>Tabet shares fluctuated and extended trading following the report.

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<v Speaker 2>The price of silver has plunged by as much as

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<v Speaker 2>seventeen percent today after a two day recovery. Silver prize

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<v Speaker 2>has hit an all time high in late January of

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

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<v Speaker 2>silver has lost more than a third of its value

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<v Speaker 2>and is trading at around seventy five dollars. The precious

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<v Speaker 2>metal rally last month was driven by speculative leveraged bets,

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<v Speaker 2>geopolitical upheaval and concerns over fed independence in the UK.

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<v Speaker 1>Kir Starmer's position is in doubt following the scrutiny of

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<v Speaker 1>the appointment of Peter Mandelsson as UK ambassador to the

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<v Speaker 1>US and his relationship with Jeffrey Epstein. The Prime Minister

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<v Speaker 1>is facing backlash from his own party members after he

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<v Speaker 1>struggled to answer questions from Opposition leader kemmy Badenoch about

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

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<v Speaker 1>Starmer maintained he was not warned of the extent of wrongdoing.

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<v Speaker 5>Madlsson betrayed our country, our parliament and my party. Mister Speaker,

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<v Speaker 5>he lied repeatedly to my team when asked about his

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<v Speaker 5>relationship with Epstein before and during his tenure as ambassador.

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<v Speaker 1>K Starmer, speaking during Prime Minister's questions or he was

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<v Speaker 1>forced to acknowledge that the material used to vest Mandlsson

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<v Speaker 1>did contain details of Mandalsson's dealings with Epstein, Andp's voted

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<v Speaker 1>to release all documents related to Mandelson's appointment as an ambassador.

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

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<v Speaker 2>Now. The Bank of England is widely expected to leave

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<v Speaker 2>interest rates on whold today as it waits for more

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<v Speaker 2>evidence that inflation is under control. Bloomakes You and Potts

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<v Speaker 2>has a preview.

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<v Speaker 6>Just one of thirty two economists in Bloomberg survey expects

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<v Speaker 6>the rake cut today. The overwhelming consensus is that the

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<v Speaker 6>UK SPASE eight will remain unchained at three point seventy

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<v Speaker 6>five percent ahead of the twelve PM announcement. Rate setters

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<v Speaker 6>will be weighing the contradictory problems of above target inflation

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<v Speaker 6>and growing concerns about the labor market with unemployment now

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<v Speaker 6>above five percent. But on productivity there could finally be

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<v Speaker 6>some good news. Speaking to Bloomberg's scianists say that headline

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<v Speaker 6>productivity estimates may be masking a recent resurgence driven by

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<v Speaker 6>the adoption of artificial intelligence. One economists from UBS Wealth

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<v Speaker 6>Management saying the UK and global economy are likely in

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<v Speaker 6>better shape than the media would have us believe. In London,

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<v Speaker 6>I'm uing pots to Bloomberg Radio.

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<v Speaker 1>The European Central Bank is also likely to keep interest

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<v Speaker 1>rates on hold for a fifth consecutive meeting. That's despite

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<v Speaker 1>geopolitical tensions and a stronger euro. All economists surveyed by

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<v Speaker 1>Bloomberg expect the deposit rate to be kept at two

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<v Speaker 1>percent as today's meeting. Investors analyst cy rates staying there

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<v Speaker 1>until the end of next year, with the chances of

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<v Speaker 1>a hike in twenty twenty six receding.

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<v Speaker 2>I've got some breaking news this hour. BNP Pariba has

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<v Speaker 2>reported unexpectedly high fourth quarter profit and raised some midterm

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<v Speaker 2>financial targets. So the French lender achieved net income of

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<v Speaker 2>two point nine seven billion euros in the three months

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<v Speaker 2>through to December. The firms also raised its target for

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<v Speaker 2>profitability for twenty twenty eight. Meanwhile, the Spanish lender BBVA

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<v Speaker 2>has reported fourth quarter profits of just over two and

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<v Speaker 2>a half billion euros, broadly in line with estimers. Net

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<v Speaker 2>interests income came in at over seven billion euros, with

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<v Speaker 2>some two hundred million euros ahead of expectations. Bbva's shares

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<v Speaker 2>have doubled over the last twelve months.

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<v Speaker 1>The biggest US lenders are pushing the European Union to

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<v Speaker 1>loosen its cap on banker bonuses their lobby incomes. As

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<v Speaker 1>the EU considers a wider set of reforms to boost

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<v Speaker 1>competitiveness In books. Tam Adebayo has the story.

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<v Speaker 7>The EU is accelerating a planned review of its banking

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<v Speaker 7>rule book after pressure from the States and for the

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

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<v Speaker 7>The likes of Goldman, Sachs and JP Morgan are pushing

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<v Speaker 7>for a loosening of banker bonus rules, which currently cap

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<v Speaker 7>payments at twice fixed salaries. But whilst the Association for

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<v Speaker 7>Financial Markets in Europe has put the issue on its

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<v Speaker 7>wish list of reforms, there is some pushback. Bloomberg understands

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<v Speaker 7>that insiders feel the change could come at the expense

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<v Speaker 7>of other measures like simplifying capital structure and reducing daily

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<v Speaker 7>regulatory burdens. In London, Tea at Bayo, Bloomberg Radio.

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<v Speaker 2>And those are our top stories for you this morning.

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<v Speaker 2>Looking at the markets, the tech sell off continues in Asia.

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<v Speaker 2>The MASCI Asia Pacific indexes down by one point three percent.

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<v Speaker 2>Gold and silver continue to decline. Gold is down by

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<v Speaker 2>one point two percent this morning. You've also got copper

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<v Speaker 2>down today on the LME, Bitcoin falling to a ten

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<v Speaker 2>month low in Asia, trading. Looking at stock futures for Europe,

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<v Speaker 2>we're also expecting a lower open here. We're down by

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<v Speaker 2>two tens of one percent. The Blue Big Dollar spot

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<v Speaker 2>indexes slightly firmer. The pound and the euro are both

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<v Speaker 2>lower this morning ahead of central bank rate decisions.

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<v Speaker 3>Those are the markets in.

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<v Speaker 1>A moment more and the continuing tech sell off that's

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<v Speaker 1>been deepening over AI disruption fears. Plus how a check

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<v Speaker 1>trading firm took inspiration from science fiction to dominate Europe's

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<v Speaker 1>most volatile power market. But another story that caught ari

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<v Speaker 1>and a lot of attention this morning as well. In

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

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<v Speaker 2>Yeah, absolutely, MP's have voted for the government here in

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<v Speaker 2>Britain to disclose all the documents relating to Peter mandelson

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<v Speaker 2>appoint and his appointment as US ambassador. So Kis Starmer

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<v Speaker 2>had wanted to keep those documents confidential, arguing that there

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<v Speaker 2>were issues of national security, but instead they will now

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<v Speaker 2>go to this parliamentary cross party committee for review and

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<v Speaker 2>then presumably release. It's a major defeat for Kis Starmer

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<v Speaker 2>and that is the point. It shows the depth of

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<v Speaker 2>anger of his own MPs really about this whole issue

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<v Speaker 2>that has arisen because of Jeffrey Epstein and all of

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<v Speaker 2>those files that were released. It could perhaps eventually precipitate

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

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<v Speaker 2>or could show how much was known about Mandalson's relationship

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<v Speaker 2>with epscen or maybe more details before the decision was

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<v Speaker 2>made to appoint him as the UK's ambassador. So there

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<v Speaker 2>was a really dramatic moment yesterday in Parliament when Kenny

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<v Speaker 2>Badenot was asking the Prime Minister whether the official secret

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<v Speaker 2>vetting for Mandalson mentioned this ongoing relationship with Epstein, and

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<v Speaker 2>the Prime Minister applied at one point yes to stunned NPS.

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<v Speaker 2>He then went on to say that Mandelson though didn't

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<v Speaker 2>tell the truth when he was questioned.

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<v Speaker 8>Yeah.

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<v Speaker 1>Look, it's a huge political story in the UK and

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<v Speaker 1>I've been interested to read what Matthew Brooker has been

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<v Speaker 1>writing about this for Bloomberg Opinion, thinking about what the

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<v Speaker 1>bigger picture might be actually for the future of the

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<v Speaker 1>House of Lords. Will this finally prompt the long discussed

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<v Speaker 1>reform of how lords are appointed and vetted. Of course,

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<v Speaker 1>the vetting they're very much in focus for Peter Mandelson

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<v Speaker 1>as well, and whether or not this might see Labor

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<v Speaker 1>deliver on some of what it's promised in its manifesto

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<v Speaker 1>of being big changes for the upper house. I mean

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<v Speaker 1>Matthew Brooker's point, you know, seems to be much easier

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<v Speaker 1>to sack a prince than a lord at the moment.

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<v Speaker 1>As well. He makes quite a good argument for how

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<v Speaker 1>this could be done as well, and says that look,

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<v Speaker 1>you know, if you have an upper house that's unelected,

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<v Speaker 1>you need to have confidence and the people who are

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

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<v Speaker 1>then you know that's going to cause bigger questions about

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<v Speaker 1>the function and the value of the House of Lords.

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<v Speaker 2>Yeah, and I was really interested in his point that

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<v Speaker 2>Canada has an upper house that's based on the UK's,

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<v Speaker 2>but it's got this independent body that picks people to

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

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<v Speaker 2>that a model? I thought that it was a really

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<v Speaker 2>interesting point, and we'll put a link to that story

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<v Speaker 2>in our podcast show notes.

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<v Speaker 1>Well, let's get into the big market moving story that

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<v Speaker 1>sell off continuing for a third day today, inspired by

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<v Speaker 1>these fears over AI on the verge of up ending

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<v Speaker 1>business models for a wide range of companies. We've now

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<v Speaker 1>seen a trillion dollars wiped off software stocks as a

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

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<v Speaker 1>Intelligence joins us now for more math. There have been

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<v Speaker 1>many AI driven selloffs since chat GPT went mainstream. Is

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<v Speaker 1>this the most significant one so far?

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<v Speaker 8>Yeah?

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<v Speaker 9>I think it is without question obviously probably one of

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<v Speaker 9>the other noteworthy ones that comes to mind as well.

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<v Speaker 9>You know, we heard about deep Seek. She kind of

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<v Speaker 9>really shook up the industry. But yeah, I think the

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<v Speaker 9>both the breadth and depth of the sell off and

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<v Speaker 9>the speed of it has just been quite breath shaking.

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<v Speaker 2>Really the Deep See moment, I mean, was that because

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<v Speaker 2>it was China versus the US that was the issue there,

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<v Speaker 2>wasn't it? And then it leads to the question about

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<v Speaker 2>whether the current sell off is an overreaction or not.

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<v Speaker 9>I think part of it was China US, but actually

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<v Speaker 9>part of that Deep Seek moment was actually quite similar

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

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<v Speaker 9>the deep Seek model purported to do what the developed

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

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<v Speaker 9>hugely cheaper. And this was like, you know, wow, we

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<v Speaker 9>thought this was the new model, and actually maybe this

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<v Speaker 9>is the new model here. And I think that's exactly

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<v Speaker 9>what's happening here is that you know, even kind of

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<v Speaker 9>new generation software companies are potentially going to be usurped

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<v Speaker 9>by these AI developed AI tools, you know, And that's

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<v Speaker 9>really essentially what Anthropic has done. It said, Okay, we

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<v Speaker 9>started with Claude code, Claudes large language model and code.

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<v Speaker 9>Claud Code helps software developers to you know, completely reimagine

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<v Speaker 9>how I develop software for new programs, and that kind

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<v Speaker 9>of evolved into Clawed Cowork, which actually now is an

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<v Speaker 9>incredibly interesting and powerful add on to Excel, the most

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<v Speaker 9>popular bit of productivity software in the world, and as

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<v Speaker 9>usurped Microsoft's own co pilot potentially in that platform. And

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

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<v Speaker 9>seemingly needing almost you know, very very kind of little

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<v Speaker 9>human intervention to develop this code and providing a very

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<v Speaker 9>powerful tool. I think that's kind of what's kind of

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<v Speaker 9>really made people kind of you know, step back and rethink, wow,

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<v Speaker 9>you know, we thought we had this figured out and

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<v Speaker 9>maybe we don't. And the answer to that in the

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<v Speaker 9>short term, as it often is with markets, is let's

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<v Speaker 9>just sell everything and think about it and then step

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<v Speaker 9>back in once we have a new view about what

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<v Speaker 9>the future is and pick our new winners once we've

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<v Speaker 9>got that figured out.

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<v Speaker 1>This time around, as software stocks that are very much

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<v Speaker 1>in focus, but are there other sectors could be vulnerable

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<v Speaker 1>to this sort of investor pressure over AI in the future.

0:13:05.000 --> 0:13:05.560
<v Speaker 3>Yeah, exactly.

0:13:05.600 --> 0:13:07.920
<v Speaker 9>And obviously software has been the focus, but it has

0:13:08.080 --> 0:13:11.360
<v Speaker 9>hit other industries. You know, One notable one has been

0:13:11.400 --> 0:13:15.120
<v Speaker 9>the big advertising agencies. So if we look back to

0:13:15.320 --> 0:13:19.640
<v Speaker 9>Tuesday Publicist, which is one of the biggest and most

0:13:19.640 --> 0:13:23.119
<v Speaker 9>successful ad agencies, They've made a massive pivot towards technology

0:13:23.120 --> 0:13:27.520
<v Speaker 9>and AI, so were perceived to be leading this transition

0:13:27.559 --> 0:13:31.400
<v Speaker 9>and managing it really well. They reported really good results

0:13:31.440 --> 0:13:35.120
<v Speaker 9>and encouraging outlook, the whole ad agency group sell off,

0:13:35.200 --> 0:13:37.079
<v Speaker 9>you know, eight to ten percent that day, and I've

0:13:37.080 --> 0:13:40.640
<v Speaker 9>had further declines still because they are also perceived as

0:13:40.679 --> 0:13:46.200
<v Speaker 9>an industry that could be completely disrupted by AI. And

0:13:46.240 --> 0:13:51.960
<v Speaker 9>I think this whole kind of anthropic moment has again

0:13:52.040 --> 0:13:55.280
<v Speaker 9>led to kind of incremental concerns that the modern these businesses.

0:13:55.559 --> 0:13:58.400
<v Speaker 9>Yes we knew or exposed to it, but that seemed

0:13:58.440 --> 0:14:02.520
<v Speaker 9>to be managing that transition in a good way. Actually,

0:14:02.840 --> 0:14:05.360
<v Speaker 9>we need to go back and rethink that. So I

0:14:05.400 --> 0:14:08.880
<v Speaker 9>think anything that's kind of like a services based industry

0:14:09.920 --> 0:14:19.160
<v Speaker 9>from ad agency's, legal, accounting, consulting, financial advisory, all these

0:14:19.280 --> 0:14:26.560
<v Speaker 9>kind of human intensive service based industries potentially not going

0:14:26.640 --> 0:14:27.600
<v Speaker 9>to be untouched by this.

0:14:28.400 --> 0:14:30.520
<v Speaker 3>Yes, it's sort of an incredible moment.

0:14:30.800 --> 0:14:33.720
<v Speaker 2>Is it going to be a transition with AI or

0:14:33.880 --> 0:14:36.240
<v Speaker 2>just a rupture? I think investors are really kind of

0:14:36.280 --> 0:14:39.520
<v Speaker 2>contemplating this. Matt, thank you so much for your time today.

0:14:39.560 --> 0:14:44.280
<v Speaker 2>Matt Bloxham is Bloomberg's senior analyst with Bloomberg Intelligence.

0:14:44.320 --> 0:14:49.160
<v Speaker 3>Thank you for your time. Stay with us. More from

0:14:49.200 --> 0:14:51.320
<v Speaker 3>Bloomberg Daybaque coming up after this.

0:14:51.880 --> 0:14:54.600
<v Speaker 1>Now, a check trading firm has come from nowhere to

0:14:54.680 --> 0:14:59.120
<v Speaker 1>dominate Europe's most volatile power market. The trio behind Second

0:14:59.200 --> 0:15:03.520
<v Speaker 1>Foundation to inspiration from science fiction, hiring maths prodigies from

0:15:03.560 --> 0:15:07.240
<v Speaker 1>across Eastern Europe. Our energy reporter Eva Brendel joins us

0:15:07.280 --> 0:15:09.320
<v Speaker 1>now for more. Eva, good morning, great to have you

0:15:09.360 --> 0:15:13.280
<v Speaker 1>with us. How has Second Foundation become such an important player.

0:15:13.640 --> 0:15:16.960
<v Speaker 8>So the company operates on the ultrasure term market and

0:15:17.040 --> 0:15:20.320
<v Speaker 8>to be successful in this you have to use algorithmic trading,

0:15:20.800 --> 0:15:23.000
<v Speaker 8>and this is what they seem to be very good at.

0:15:23.440 --> 0:15:27.640
<v Speaker 8>They have built very sophisticated algorithms that can react to

0:15:27.720 --> 0:15:31.960
<v Speaker 8>the market in milliseconds. And to get good at this

0:15:32.080 --> 0:15:35.520
<v Speaker 8>sort of trading is the main strategy is to have

0:15:35.720 --> 0:15:40.440
<v Speaker 8>very smart employees who constantly can improve those algorithms. And

0:15:40.560 --> 0:15:43.200
<v Speaker 8>so they hire a lot of smart radios with a

0:15:43.280 --> 0:15:46.200
<v Speaker 8>special love for solving math riddles. And they even say

0:15:46.240 --> 0:15:50.160
<v Speaker 8>they have their most math Olympic medalists in Eastern Europe.

0:15:50.600 --> 0:15:54.520
<v Speaker 2>Wow, okay, so mass prodigies then are working for this company. Well,

0:15:54.560 --> 0:15:57.200
<v Speaker 2>then tell us a bit more about the inter day

0:15:57.320 --> 0:16:01.840
<v Speaker 2>power market that they operate in, the second foundation operates in,

0:16:02.320 --> 0:16:06.440
<v Speaker 2>and why it's such a lucrative space actually to use

0:16:06.480 --> 0:16:07.440
<v Speaker 2>all these people in.

0:16:07.880 --> 0:16:10.800
<v Speaker 8>So, the interjay power market has undergone a big change

0:16:10.840 --> 0:16:12.840
<v Speaker 8>in recent years, and this has to do with the

0:16:12.920 --> 0:16:16.720
<v Speaker 8>energy transition because as more renewables came into the system,

0:16:17.000 --> 0:16:21.000
<v Speaker 8>more volatility came to the market. And yeah, now it

0:16:21.080 --> 0:16:23.400
<v Speaker 8>is it's pretty hard to predict how windy it will

0:16:23.440 --> 0:16:27.000
<v Speaker 8>be or how much sun will shine that day, prices

0:16:27.040 --> 0:16:30.520
<v Speaker 8>can hugely swing. And yeah, on very windy sunny days

0:16:30.520 --> 0:16:33.560
<v Speaker 8>of the sea, prices will go negative or prices can

0:16:33.600 --> 0:16:36.880
<v Speaker 8>also jump very high up to one thousand euro pomega

0:16:37.200 --> 0:16:39.960
<v Speaker 8>what are when demand is high and it is also windless.

0:16:40.600 --> 0:16:44.000
<v Speaker 8>And this increased volatility has made the market much more

0:16:44.040 --> 0:16:48.520
<v Speaker 8>attractive for algorithmic traders who can react faster than anyone else.

0:16:49.000 --> 0:16:52.200
<v Speaker 1>Yeah, the co founders are fans of science fiction. How

0:16:52.200 --> 0:16:54.440
<v Speaker 1>has that influenced their business?

0:16:54.640 --> 0:16:57.600
<v Speaker 8>So, first of all, the company is named after the

0:16:57.640 --> 0:17:02.240
<v Speaker 8>second Foundation, this third book in Isaacs of Foundations Areas,

0:17:02.440 --> 0:17:04.879
<v Speaker 8>and every new employee gets a copy of that book.

0:17:04.920 --> 0:17:09.520
<v Speaker 8>And also they have other things named after science fiction books.

0:17:09.560 --> 0:17:12.880
<v Speaker 8>So their trading platform is called soft Hoham, named after

0:17:12.880 --> 0:17:17.200
<v Speaker 8>a supercomputer in the Three Body Problem. And also when

0:17:17.200 --> 0:17:21.600
<v Speaker 8>you visit their company's park office, all of their walls

0:17:21.600 --> 0:17:24.200
<v Speaker 8>areligned with bookshelves and you can guess what's in their

0:17:24.240 --> 0:17:26.280
<v Speaker 8>even more science fiction books.

0:17:26.920 --> 0:17:30.720
<v Speaker 3>Okay, so then what's next for the company.

0:17:31.240 --> 0:17:34.480
<v Speaker 8>The company now expands a battery business across Europe, and

0:17:34.880 --> 0:17:38.440
<v Speaker 8>they might at some point even beyond expand beyond energy.

0:17:38.680 --> 0:17:41.080
<v Speaker 8>So they share with me that they might go into

0:17:41.200 --> 0:17:42.119
<v Speaker 8>equity trading.

0:17:42.200 --> 0:17:46.600
<v Speaker 1>Next, this is Bloomberg Daybreak Europe, your morning brief on

0:17:46.680 --> 0:17:49.840
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0:17:50.200 --> 0:17:54.160
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0:17:56.359 --> 0:17:59.399
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0:17:59.440 --> 0:18:02.159
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0:18:02.200 --> 0:18:04.960
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0:18:09.960 --> 0:18:11.240
<v Speaker 3>I'm Caroline Hepka and.

0:18:11.200 --> 0:18:13.840
<v Speaker 1>I'm Stephen Carol. Join us again tomorrow morning for all

0:18:13.880 --> 0:18:16.280
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0:18:16.320 --> 0:18:19.680
<v Speaker 1>on Bloomberg Daybreak Europe