WEBVTT - Oracle Earnings, EU China Tariffs 0:00:02.440 --> 0:00:11.080 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence 0:00:11.160 --> 0:00:12.880 with Alex Steel and Paul'sweeny. 0:00:13.000 --> 0:00:16.240 The real app performance has been the US corporate high yield. 0:00:16.400 --> 0:00:18.759 Are the companies lean enough? Have they trimmed all the fats? 0:00:18.800 --> 0:00:22.599 The semiconductor business is a really cyclical business. 0:00:22.079 --> 0:00:25.680 Breaking market headlines and corporate news from across the globe. 0:00:25.760 --> 0:00:28.360 Do investors like the M and A that we've seen? 0:00:28.600 --> 0:00:32.760 These are two big time blue chip companies window. 0:00:32.440 --> 0:00:34.760 Between the peak and cut changing. 0:00:34.600 --> 0:00:39.040 Super fast Bloomberg Intelligence with Alex Steel and Paul'sweenye on 0:00:39.280 --> 0:00:40.400 Bloomberg Radio. 0:00:42.120 --> 0:00:44.760 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:44.800 --> 0:00:47.320 business stories impacting Wall Street and global markets. 0:00:47.440 --> 0:00:49.400 Each and every week we provide and up research and 0:00:49.479 --> 0:00:51.239 data on some of the two thousand companies and one 0:00:51.320 --> 0:00:53.840 hundred and thirty industries our analysts cover worldwide. 0:00:54.120 --> 0:00:56.640 Today, we'll look at why trade tensions between the EU 0:00:56.760 --> 0:00:58.120 and China may be escalated. 0:00:58.200 --> 0:01:00.920 Plus we'll discuss how the energy transition will drive a 0:01:00.960 --> 0:01:02.920 significant uptick in demand for metals. 0:01:03.080 --> 0:01:06.120 But first we begin with the computer technology company Oracle. 0:01:06.440 --> 0:01:09.240 This week, Oracle reported fourth quarter results that fell short 0:01:09.240 --> 0:01:13.360 of analyst expectations. But Oracle shares still hit a record high. 0:01:13.400 --> 0:01:16.080 From where we were joined by anorog Rana, Bloomberg Intelligence 0:01:16.120 --> 0:01:19.200 technology analyst. We first asked Anaurag why investors were so 0:01:19.360 --> 0:01:20.600 happy about Oracle. 0:01:21.000 --> 0:01:22.800 I think the biggest thing in our view were the 0:01:22.800 --> 0:01:25.399 two partnerships that were announced, one with Google and one 0:01:25.440 --> 0:01:27.119 with open Ai, you know, from a. 0:01:27.080 --> 0:01:28.040 Future point of view. 0:01:28.280 --> 0:01:30.759 At the same time, we continue to see strong demand 0:01:30.840 --> 0:01:33.760 for the cloud infrastructure business, which has been kind of 0:01:33.760 --> 0:01:36.720 the story on cloud on Oracle for the last you 0:01:36.760 --> 0:01:39.559 could say, eighteen months or so. So that remained strong. 0:01:39.920 --> 0:01:42.480 But remember, prior to going into the quarter, there is 0:01:42.560 --> 0:01:45.319 a lot of noise about software spending slowing down, but 0:01:45.400 --> 0:01:47.640 that's on the application site that's a different kind of 0:01:47.640 --> 0:01:51.120 the business. But on the infrastructure side, where you're hosting 0:01:51.160 --> 0:01:55.160 somebody's you know, application or a workload, that business is 0:01:55.160 --> 0:01:57.320 still doing well. So it's good for Amazon, it's good 0:01:57.320 --> 0:02:00.280 for Microsoft, and now it's actually good for Audio. 0:02:00.200 --> 0:02:03.760 Also, Anura, can we put Oracle into our besket of 0:02:03.800 --> 0:02:04.560 ai stocks? 0:02:04.560 --> 0:02:07.520 Now, yeah, I mean have we been talking about it 0:02:07.560 --> 0:02:09.600 for a while that they would be most likely the 0:02:09.639 --> 0:02:13.440 fourth largest cloud infrastructure vendor down in the future, right 0:02:13.480 --> 0:02:17.720 behind you know, Amazon, Microsoft, Google, and then it'll be Oracle. Now, remember, 0:02:18.080 --> 0:02:21.000 everybody's trying to get the workloads or trying to figure 0:02:21.040 --> 0:02:24.079 out how to put their AI experiments out in the 0:02:24.120 --> 0:02:25.880 cloud desk to see what they can do with it, 0:02:26.200 --> 0:02:28.839 and they're running short of capacity. So when you look 0:02:28.880 --> 0:02:31.560 at a company like Oracle, which has deep pockets, can 0:02:31.639 --> 0:02:34.120 actually afford to spend more. They announced they're going to 0:02:34.200 --> 0:02:36.600 double their capex this year, so that's going to be 0:02:36.600 --> 0:02:40.320 somewhere around fourteen billion dollars or so for the next 0:02:40.320 --> 0:02:42.680 twelve months. I mean, they can spend the money so 0:02:42.760 --> 0:02:43.440 people will. 0:02:43.240 --> 0:02:43.760 Come to them. 0:02:44.080 --> 0:02:45.960 So let me just dumb it down for me here. 0:02:46.000 --> 0:02:50.800 So Microsoft and Google then are using Oracle stuff for 0:02:50.880 --> 0:02:55.080 their AI cloud infrastructure. So all the language model learning 0:02:55.160 --> 0:02:57.480 things that happen, and all the data they're collecting for 0:02:57.600 --> 0:02:59.959 AI goes now to Oracle's hardware software. 0:03:01.000 --> 0:03:03.640 Well think about it that. Let's assume that you know, 0:03:03.680 --> 0:03:06.600 Oracle is an electricity provider, and if for any reason, 0:03:06.639 --> 0:03:08.760 Microsoft feels short of it, they can go out and 0:03:08.960 --> 0:03:11.120 you know, rent some from somebody else. I mean, because 0:03:11.280 --> 0:03:14.519 everybody is getting a lot of workloads or incoming inquiries 0:03:14.600 --> 0:03:18.000 to do things. But they're running shot of capacity, and 0:03:18.040 --> 0:03:20.079 that's where you know they can go out and borrow. 0:03:20.240 --> 0:03:22.520 But when it comes to Google, what they basically are 0:03:22.560 --> 0:03:25.720 doing is they're saying, we have a lot of companies, 0:03:25.800 --> 0:03:29.640 let's say banks and airlines that house their data on 0:03:29.760 --> 0:03:32.919 Oracle's databases. They're going to take their servers and put 0:03:32.960 --> 0:03:36.360 it in Google's cloud data centers. So if anybody wants 0:03:36.400 --> 0:03:40.400 to run you could say, an AI or an mL 0:03:40.760 --> 0:03:43.920 machine learning algorithm, they can then tap into that data 0:03:44.080 --> 0:03:47.000 that's housed into the audicle database so that you know, 0:03:47.000 --> 0:03:48.440 they can run those queries faster. 0:03:50.000 --> 0:03:52.360 Listen to this evaluation story. This is just another one 0:03:52.360 --> 0:03:54.760 that's very much like Nvidia on a terms of valuation, 0:03:55.160 --> 0:03:58.320 trailing Pe on their fiscal twenty twenty four gens May 0:03:58.320 --> 0:04:01.760 thirty first, twenty four reading about thirty six times earnings 0:04:01.960 --> 0:04:05.240 on forward earnings just on their May twenty twenty five 0:04:05.680 --> 0:04:08.280 twenty two times earnings. Oh, I mean, it's another one 0:04:08.320 --> 0:04:10.320 those in video word, this is a company that appears 0:04:10.360 --> 0:04:12.920 to be growing itself into the multiple How do you 0:04:12.920 --> 0:04:16.560 think about valuation here on a rock for the oracles 0:04:16.560 --> 0:04:18.240 of the world, for the videos of the world. Now 0:04:18.279 --> 0:04:20.360 that it seems to like, boy, it's kind of a 0:04:20.400 --> 0:04:21.679 new paradigm here with AI. 0:04:22.920 --> 0:04:25.560 Yeah, when you look at cloud infrastructure companies, you know, 0:04:25.600 --> 0:04:28.839 one could argue that article's slightly cheaper than all the others, 0:04:28.839 --> 0:04:32.320 But at the same time, their cloud infrastructure business is small, 0:04:32.480 --> 0:04:35.240 so small compared to the overall pie, which is not 0:04:35.360 --> 0:04:38.400 growing as much. Remember, after all said and done, for 0:04:38.520 --> 0:04:41.960 next year, article may grow sales let's say, around eleven 0:04:42.000 --> 0:04:44.960 twelve percent someone in that rain, So it's not anywhere 0:04:45.040 --> 0:04:47.440 close to where in video is going to grow, you know, 0:04:47.480 --> 0:04:49.240 their revenues for the next twelve months. 0:04:49.320 --> 0:04:51.200 All right, So let's step back and look at your 0:04:51.200 --> 0:04:53.960 space in general. Here on a rock. When we think 0:04:54.000 --> 0:04:56.000 about I mean, I feel like we're learning something or 0:04:56.000 --> 0:05:00.160 at least iron every day about AI, the cloud, OU, 0:05:00.839 --> 0:05:04.320 the spending associated where the spending's coming from. So, as 0:05:04.320 --> 0:05:07.320 you sit back and you're constructing a basket of AI stocks, 0:05:07.720 --> 0:05:10.120 kind of what would you throw in there kind of 0:05:10.360 --> 0:05:11.279 in order? Would you say? 0:05:11.400 --> 0:05:11.919 Good question? 0:05:12.600 --> 0:05:15.040 Yeah, that's it's a very good question. In fact, everybody's 0:05:15.040 --> 0:05:16.920 trying to figure that out. But when you look at 0:05:16.960 --> 0:05:19.680 the AI basket, you know, the bigger companies on the 0:05:19.760 --> 0:05:22.120 chip side are the first one, So that was Sisennvidia. 0:05:22.520 --> 0:05:24.800 You know, Dell's been a bigger, somewhat of a player 0:05:24.800 --> 0:05:27.120 over there. But when you come to the software side, 0:05:27.160 --> 0:05:30.280 the number one company from an AI exposure is Microsoft 0:05:30.320 --> 0:05:32.960 and that's because of its partnership with open AI. Now 0:05:33.000 --> 0:05:35.359 when you look at you know, the downstream play, it 0:05:35.480 --> 0:05:37.680 is the cloud vendors. Now they have a very small 0:05:37.680 --> 0:05:40.560 portion of their workloads coming from AI, but that's going 0:05:40.640 --> 0:05:42.599 to rise going forward. That's going to be you know, 0:05:42.640 --> 0:05:45.560 the likes of Amazon, Google Cloud, and then Oracle Cloud. 0:05:45.839 --> 0:05:49.760 So these are the infrastructure players, then the application companies. Now, 0:05:49.800 --> 0:05:52.720 these companies are right now experimenting with products. They don't 0:05:52.760 --> 0:05:55.520 really have a full, you know, massive suite out there. 0:05:55.680 --> 0:05:58.719 You know, that's the like of Salesforce or or service 0:05:58.839 --> 0:06:02.400 Now companies that are experimenting with it or will have 0:06:02.440 --> 0:06:05.599 smaller products or newer products coming in. Adobe is actually 0:06:05.640 --> 0:06:08.520 another one that actually stands out for us because they 0:06:08.600 --> 0:06:11.480 have a product that's working very well. We'll see what 0:06:11.520 --> 0:06:12.320 they do about it. 0:06:12.520 --> 0:06:14.320 Oh really, because I feel like, isn't the whole thing 0:06:14.360 --> 0:06:17.239 with Adobe is that they haven't unveiled the right AI 0:06:17.360 --> 0:06:19.480 product or anything along those lines. 0:06:20.080 --> 0:06:23.000 Well, they have one for creating images, So that's doing 0:06:23.040 --> 0:06:25.600 really well. The one, the next one where everybody's waiting for, 0:06:25.800 --> 0:06:30.240 is the AI product that can create videos on the fly. Now, 0:06:30.240 --> 0:06:32.880 the big controversy on Adobe is that, oh, why do 0:06:32.960 --> 0:06:34.799 I need to buy a software when I can create 0:06:34.800 --> 0:06:37.960 these images through you know, let's say chat GPT. But 0:06:38.040 --> 0:06:40.640 it's not just about creating images. First and foremost. When 0:06:40.680 --> 0:06:43.000 you use an Adobe product, you first of all, are 0:06:43.040 --> 0:06:46.760 not worried about copyright issues. Second thing, you really use 0:06:46.800 --> 0:06:50.359 Adobe for editing and the entire workflow process, not just 0:06:50.440 --> 0:06:53.440 creating images. So creating images can be a commodity, but 0:06:53.760 --> 0:06:56.400 editing and actually giving out a big story you still 0:06:56.440 --> 0:06:57.360 need a software for that. 0:06:57.800 --> 0:07:00.760 Our thanks Anna rag Rana, Bloomberg Intelligence to Knowledge Analyst. 0:07:00.920 --> 0:07:02.400 We now take a look at one of the Bloomberg 0:07:02.440 --> 0:07:05.359 Big Take stories featured this week on Bloomberg Intelligence. It 0:07:05.400 --> 0:07:08.040 focuses on the recent exit of talent at the Federal 0:07:08.040 --> 0:07:10.160 Reserve Bank of New York and the piece is titled 0:07:10.440 --> 0:07:14.080 talent exit at Williams New York fed stokes concern on 0:07:14.160 --> 0:07:15.280 its way for more. 0:07:15.360 --> 0:07:18.280 We are joined by Alex Howers, Bloomberg short term interest 0:07:18.360 --> 0:07:21.480 rate reporter. We began by asking what exactly is going 0:07:21.520 --> 0:07:22.520 on at the New York FED. 0:07:22.960 --> 0:07:24.840 What's kind of happened over the last couple of years 0:07:24.920 --> 0:07:29.240 is you've seen an exodus of basically senior management. These 0:07:29.240 --> 0:07:31.560 are people who have been with the bank for decades 0:07:32.600 --> 0:07:35.200 just deciding to exit, either that they retire or that 0:07:35.240 --> 0:07:38.080 they you know, find another opportunity on Wall Street, or 0:07:38.200 --> 0:07:41.960 just really but what's ultimately driving it is the environment 0:07:42.240 --> 0:07:45.520 is just not they have found just not conducive either 0:07:45.760 --> 0:07:48.800 that you know, there's been changes in the bank under 0:07:49.160 --> 0:07:52.400 the leadership of John Williams that they have found, you know, 0:07:52.720 --> 0:07:56.160 doesn't necessarily work for them anymore. And as a result, 0:07:56.200 --> 0:07:59.240 they're leaving. And what people are worried about is the 0:07:59.280 --> 0:08:02.760 so called brand. It leaves a vacuum of people who 0:08:02.800 --> 0:08:06.200 are experienced at fighting crises. Because remember a lot of 0:08:06.240 --> 0:08:08.040 these people have been there. They were there for the 0:08:08.040 --> 0:08:10.440 financial crisis, they were there for the repo market blow up, 0:08:10.440 --> 0:08:13.160 they were there in twenty twenty. Like, they have crisis 0:08:13.200 --> 0:08:16.000 fighting experience, and so you're leaving a lot of that 0:08:16.480 --> 0:08:19.160 knowledge is leaving the bank, but then also just their 0:08:19.200 --> 0:08:23.200 ability and the question of are they ready for whatever's next, 0:08:23.280 --> 0:08:23.960 And that's what. 0:08:23.960 --> 0:08:25.320 People are really concerned. 0:08:25.440 --> 0:08:29.480 Is they're feeling like something severely lacking under the leadership 0:08:29.480 --> 0:08:30.160 of John Williams. 0:08:30.360 --> 0:08:32.040 There's why I love that you wrote this, because Alex 0:08:32.120 --> 0:08:35.280 is usually the person has those really nerdy repo market 0:08:35.720 --> 0:08:38.200 articles where you're like, I know this is important. I 0:08:38.240 --> 0:08:39.800 know I'm going to read it three times and I'm 0:08:39.800 --> 0:08:41.520 still going to understand twenty percent of it and I 0:08:41.559 --> 0:08:43.520 have to email Alex Harris. So thank you for writing 0:08:43.520 --> 0:08:46.200 an article that I understood right off the bat. 0:08:46.400 --> 0:08:47.400 What did they do about that? 0:08:47.480 --> 0:08:47.680 Then? 0:08:47.800 --> 0:08:49.679 I mean, is it as easy as like, hey, we're 0:08:49.720 --> 0:08:51.760 going to offer more work from home? Is it not 0:08:51.800 --> 0:08:54.080 that at all? Is it something very different? 0:08:54.640 --> 0:08:55.960 I think it's very different. 0:08:56.080 --> 0:08:58.880 I think really what people are going to have to 0:08:58.880 --> 0:09:01.520 start looking at is to be a really serious look 0:09:01.559 --> 0:09:03.480 at the role of the New York Fed. You know, 0:09:03.559 --> 0:09:07.559 for some people, they've said, look, Lorie Logan got elevated 0:09:07.679 --> 0:09:10.080 out of the New York Fed to running the Dallas Fed, 0:09:10.320 --> 0:09:12.480 and she's taken a lot of that staff with her. 0:09:12.720 --> 0:09:15.160 She has this experience on the balance sheet. People really 0:09:15.200 --> 0:09:17.800 trust her. So now people are wondering, well, it doesn't 0:09:17.840 --> 0:09:20.160 necessarily have to be New York that carries out you know, 0:09:20.200 --> 0:09:23.280 the implementation of the Fed's policies when it comes to 0:09:23.320 --> 0:09:25.920 their balance sheet, like this could shift to Dallas. 0:09:26.640 --> 0:09:27.240 So people are. 0:09:27.120 --> 0:09:30.040 Starting to ask that question or pose that question. At 0:09:30.040 --> 0:09:32.520 the same time, though, you know, people are pushing back 0:09:32.520 --> 0:09:34.680 and saying, no, no, no, this has to be in New York. 0:09:34.720 --> 0:09:36.840 We need to fix what is happening in New York. 0:09:36.880 --> 0:09:39.440 We need to retain talent in New York because the 0:09:39.480 --> 0:09:41.960 banks are here, and if something happens with the banking system, 0:09:42.000 --> 0:09:44.559 it's much easier to call everyone down to Liberty Street 0:09:44.600 --> 0:09:47.000 and say, hey, get in here, we got to figure 0:09:47.000 --> 0:09:49.520 this out than trying to call people all the way 0:09:49.559 --> 0:09:51.400 down to Dallas and say, hey, we got to figure 0:09:51.440 --> 0:09:51.800 this out. 0:09:52.040 --> 0:09:55.319 So historically the New York Fed has been the branch 0:09:55.440 --> 0:10:00.040 that manages the Treasury's balance sheet, correct buying and selling. 0:10:00.440 --> 0:10:02.840 Well the Fed's balance sheet. So there are whole things 0:10:02.840 --> 0:10:05.160 of treasuries and mbs and such. 0:10:05.240 --> 0:10:07.120 Again, they have traders there and stuff that do this. 0:10:07.160 --> 0:10:08.640 I mean, this is where it happens in New York. 0:10:08.920 --> 0:10:12.160 Well, and you have other like Chicago still has you know, 0:10:12.400 --> 0:10:15.680 market analysis people, they still have all these things coming 0:10:15.679 --> 0:10:16.600 out of the other banks. 0:10:16.720 --> 0:10:19.040 But it is primarily a function of the New York Fed. 0:10:19.080 --> 0:10:23.000 They're tasked with managing their Fed's portfolio. Roberto Pearley is 0:10:23.040 --> 0:10:26.520 the SOMA manager, so he manages the FED securities portfolio. 0:10:26.880 --> 0:10:29.720 You know, so these things, and so the New York Fed, 0:10:29.800 --> 0:10:32.560 really post financial crisis, has just taken on such a 0:10:32.640 --> 0:10:36.880 larger role. They've essentially become like a giant broker dealer 0:10:37.200 --> 0:10:39.559 just given the size and the sheer size of their 0:10:39.600 --> 0:10:42.680 balance sheet. And that's you know, someone like Christopher Whalen 0:10:42.800 --> 0:10:45.360 is making the argument that you don't need an academic 0:10:45.440 --> 0:10:48.120 running the New York Fed. You need someone who's comfortable 0:10:48.160 --> 0:10:50.800 with operations, with the nuts and bolts, and can kind 0:10:50.800 --> 0:10:54.440 of see it from a more markets oriented perspective than 0:10:54.480 --> 0:10:55.720 an academic one. 0:10:55.960 --> 0:10:59.120 So how do they pitch that, Because who's going to 0:10:59.160 --> 0:11:01.920 give up a job Goldman that pays a nice chunk 0:11:01.960 --> 0:11:03.760 of change. Actually, I have no idea how much the 0:11:03.760 --> 0:11:05.559 New York Fed does, but I have to assume it's less. 0:11:05.760 --> 0:11:06.560 How I do it. 0:11:06.559 --> 0:11:08.840 It's like I think, when I last look at the 0:11:08.960 --> 0:11:10.720 annual report from twenty twenty three, I think it's like 0:11:10.880 --> 0:11:13.080 a little over half a million dollars that the president 0:11:13.080 --> 0:11:15.080 of the New York Fed makes but I mean, look 0:11:15.400 --> 0:11:19.360 Beth Hammock, who ran funding, who ran the Goldman Sex fundings. 0:11:19.400 --> 0:11:22.360 Are she's elevated. She's taking the role as the Cleveland 0:11:22.360 --> 0:11:23.000 Fed president. 0:11:23.400 --> 0:11:26.600 You know, Lorie Logan could always you know, people are 0:11:26.640 --> 0:11:28.679 speculating that she could come back to New York and 0:11:28.760 --> 0:11:30.760 run it. You know, these are the kinds of people 0:11:30.800 --> 0:11:33.240 I think that they envision when they're thinking about the 0:11:33.320 --> 0:11:37.040 role and who could possibly you know, helm the New 0:11:37.120 --> 0:11:39.719 York Fed after John Williams, who decides to retire a 0:11:39.760 --> 0:11:40.320 step down? 0:11:40.960 --> 0:11:43.800 Do we have a problem with John Williams? Is that 0:11:43.880 --> 0:11:46.800 a people placing the blame on these departures on John 0:11:46.800 --> 0:11:47.520 Williams and his. 0:11:47.480 --> 0:11:50.800 Style or you know, I think it's a I think 0:11:50.840 --> 0:11:53.640 it's a bit of both. I think, you know, again, 0:11:54.040 --> 0:11:56.680 you know, when we spoke to people, the message was 0:11:56.679 --> 0:12:00.800 always he is a brilliant macro economist, but just ill 0:12:00.880 --> 0:12:04.319 suited for the role. I also think culturally, the other 0:12:04.400 --> 0:12:07.280 sense I got from people is that, you know, culturally, 0:12:07.400 --> 0:12:10.360 it's it's very different than the San Francisco Fed, which 0:12:10.400 --> 0:12:12.720 is what he was running for seven years before he 0:12:12.840 --> 0:12:14.440 came and took the role in New York. 0:12:14.760 --> 0:12:15.840 It's just very different. 0:12:15.840 --> 0:12:19.680 And you know, sometimes culturally people don't fit and that's okay, 0:12:20.200 --> 0:12:22.120 and so that's something to also think about. 0:12:22.559 --> 0:12:23.760 So I think it's a bit of both. 0:12:24.000 --> 0:12:26.679 I think it is somewhat of the of the culture 0:12:26.760 --> 0:12:29.560 and just sort of not meshing. 0:12:29.920 --> 0:12:31.679 You know, they were just sort of ill suited for 0:12:31.800 --> 0:12:32.280 each other. 0:12:32.720 --> 0:12:35.520 Our thanks to Alex Harris, Bloomberg Short Term interst rate Reporter. 0:12:35.960 --> 0:12:38.439 Coming up, we're gonna break down my French President Emmanuel 0:12:38.480 --> 0:12:41.240 Maccron's call for a snap legislative election may be a 0:12:41.280 --> 0:12:42.120 serious gamble. 0:12:42.240 --> 0:12:45.440 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:12:45.480 --> 0:12:47.720 depth research and data on two thousand companies and one 0:12:47.800 --> 0:12:50.679 hundred and thirty industries. You can access Bloomberg Intelligence via 0:12:50.760 --> 0:12:53.040 bi go on the terminal, I'll Paul Swingey. 0:12:52.640 --> 0:12:54.720 And am Alex Steel and this is Bloomberg. 0:12:58.920 --> 0:13:02.800 You're listening to the Blueloomberg Intelligence podcast. Catch us live 0:13:02.880 --> 0:13:06.000 weekdays at ten am Eastern on affocr Play and Android 0:13:06.000 --> 0:13:09.120 Otto with the Bloomberg Business App. Listen on demand wherever 0:13:09.160 --> 0:13:13.000 you get your podcasts, or watch us live on YouTube. 0:13:14.080 --> 0:13:17.760 We move now to politics. French President Manuel Macron recently 0:13:17.800 --> 0:13:19.920 called for a snap legislative election. 0:13:20.360 --> 0:13:23.920 That's after Marine Lippen's far right National Rally Party defeatedt 0:13:23.920 --> 0:13:27.160 Macron's Renaissance Party in European parliament elections. 0:13:27.240 --> 0:13:30.840 The consequences of Macron putting politics above economic stability could 0:13:30.880 --> 0:13:33.960 be profound, and it's the subject of a Bloomberg opinion 0:13:33.960 --> 0:13:37.080 piece this week titled Macron plays Fast and Loose with 0:13:37.160 --> 0:13:38.600 investor Faith for more. 0:13:38.679 --> 0:13:40.640 Guest host Jess Mett and I were joined by the 0:13:40.679 --> 0:13:44.439 story's author, Marcus Ashworth. He's a Bloomberg Opinion columnist covering 0:13:44.559 --> 0:13:47.679 European markets. We first asked Marcus for his reaction to 0:13:47.720 --> 0:13:49.199 what we saw in Europe this week. 0:13:49.600 --> 0:13:52.559 I was thinking that this was a long time coming, 0:13:52.679 --> 0:13:56.760 but it was worse than perhaps everyone, including Macrol, had expected, 0:13:57.040 --> 0:13:59.520 and therefore it put him in a very difficult situation 0:13:59.640 --> 0:14:02.960 with I guess his main opposition pulling more than. 0:14:02.800 --> 0:14:06.240 Twice which his party got. Then he got like fifteen 0:14:06.240 --> 0:14:09.520 percent or something. So though he has another three years 0:14:09.559 --> 0:14:10.400 as president. 0:14:10.160 --> 0:14:12.320 If he wants to, I don't think he'll resign, but 0:14:12.360 --> 0:14:14.880 there was some question about that. He means he won't 0:14:14.920 --> 0:14:18.920 have the ability to equim of Congress to be able 0:14:18.920 --> 0:14:21.560 to do very much. He can still do a lot 0:14:21.560 --> 0:14:25.720 of presidential decrees, but nonetheless it's boxed him in, and 0:14:25.760 --> 0:14:29.800 more importantly, he can't run again by then, you know, 0:14:29.800 --> 0:14:32.200 in by twenty twenty seven, his ten year legacy would 0:14:32.200 --> 0:14:35.120 be pretty poor. So I think what he's decided to 0:14:35.280 --> 0:14:40.360 now is gamble on a political swing which has gone 0:14:40.360 --> 0:14:43.240 to the right wing that perhaps the French people they're 0:14:43.320 --> 0:14:45.320 challenged again, may push. 0:14:45.120 --> 0:14:47.400 Back against that. But the consequence of this. 0:14:47.600 --> 0:14:50.480 Is that the bomb market in particular and the stock 0:14:50.520 --> 0:14:53.640 market and some degree the economy is is going to 0:14:53.640 --> 0:14:55.800 have to take a little bit of a how can 0:14:55.840 --> 0:14:59.720 we say this bit of a shakeup, because politically this 0:14:59.800 --> 0:15:03.240 is a very aggressive move and it also puts into 0:15:03.680 --> 0:15:07.600 very much sharp contrast the financial fiscal situation of France, 0:15:07.640 --> 0:15:10.920 which is rising ever and extorably higher in debt and 0:15:10.920 --> 0:15:14.800 particularly it's budget deficits annual spend is much more than 0:15:14.840 --> 0:15:17.320 it takes in. It's five and a half percent last year, 0:15:17.360 --> 0:15:20.920 which is pretty shocking and not likely dropped much by 0:15:20.960 --> 0:15:23.280 next year. And I think the European Union could put 0:15:23.280 --> 0:15:27.400 it into double secret probation. They call it an emergency 0:15:27.440 --> 0:15:30.000 deficit procedure, but really what it means is there's in 0:15:30.000 --> 0:15:33.880 the sin bin, and that's hugely embarrassing for macn or 0:15:33.920 --> 0:15:36.720 any government. But the point is the rating agency, the 0:15:36.760 --> 0:15:39.440 credit rating agencies we saw S and P at the 0:15:39.520 --> 0:15:43.880 end of May knock France down to double A minus 0:15:44.560 --> 0:15:47.560 Fitch are already there, and movies that came out and 0:15:47.560 --> 0:15:50.760 basically said they're one notch up at double A two, 0:15:50.800 --> 0:15:52.600 but they may be having a look at it. So 0:15:52.760 --> 0:15:56.440 it's all about a worsening credit of France, a worsening 0:15:56.520 --> 0:16:00.400 political regime, which makes the European Union very nervous because 0:16:00.520 --> 0:16:03.080 you know we've seen with the previous situations with Greece 0:16:03.120 --> 0:16:05.880 and Italy that will turn the blind eye to most things. 0:16:05.880 --> 0:16:08.800 But they want everyone to be very much pro Europe 0:16:09.400 --> 0:16:11.760 and Marie La Penn's right wing party, which is the 0:16:11.840 --> 0:16:16.320 National Rally though they no longer argue for Frexit or 0:16:16.360 --> 0:16:19.920 France exit, they once did and then reason pretty. 0:16:19.640 --> 0:16:21.160 Long in Brussels. 0:16:21.280 --> 0:16:25.920 So the last thing they want is a non fully backing. 0:16:25.640 --> 0:16:27.920 Euro style prime minister. 0:16:28.360 --> 0:16:31.880 Even under Mackerel's president that we're out and settling for Brussel. 0:16:32.000 --> 0:16:35.920 That means it's very unsettling for credit rating agencies. Panic panic, panic, 0:16:36.000 --> 0:16:39.120 It means that French debt is perhaps a little bit 0:16:39.160 --> 0:16:41.240 more risky, still pretty safe, but a little bit more 0:16:41.280 --> 0:16:43.520 risk than it was before weekend. 0:16:44.080 --> 0:16:47.200 You were talking about how France has seen a sustained 0:16:47.200 --> 0:16:50.640 deterioration its fiscal position, particularly when you're looking at its debtload. 0:16:50.720 --> 0:16:52.600 How did France get into this position? 0:16:53.760 --> 0:16:59.080 Aha, they spend more than they had. The reason is 0:16:59.200 --> 0:17:00.600 I mean k Kart. 0:17:00.440 --> 0:17:03.920 Was elected on reforming the fiscal situation, and principally one 0:17:03.920 --> 0:17:07.359 of his key things was raising the retirement age, which 0:17:07.359 --> 0:17:10.560 he raised from sort of really sixty sixty two up 0:17:10.600 --> 0:17:12.879 to about sixty four. He wanted to get it up 0:17:12.880 --> 0:17:16.239 to about sixty seven, which for instance where the UK is, 0:17:17.560 --> 0:17:21.399 but massive pushback and the fact he very basically couldn't 0:17:21.400 --> 0:17:23.119 get it through unless he pushed it through by this, 0:17:23.440 --> 0:17:26.520 as I mentioned before, presidential decree worried some of the 0:17:26.600 --> 0:17:29.520 raising aginsties. Then now the fact that he has gotten 0:17:29.600 --> 0:17:33.119 really nowhere of getting stuff through the National Assembly, the 0:17:33.240 --> 0:17:36.440 Parliament or Congress is a really scary situation. 0:17:36.640 --> 0:17:38.560 So you know that means. 0:17:38.400 --> 0:17:43.159 There's even less chance of any form of fiscal improvement, 0:17:43.920 --> 0:17:47.520 of getting that budget deficit down and reducing the overall 0:17:47.520 --> 0:17:48.640 and debtness of France. 0:17:49.280 --> 0:17:51.480 And that's a pretty difficult. 0:17:51.080 --> 0:17:55.560 Situation, complete gridlock because if the national Rally were to 0:17:55.800 --> 0:17:58.439 become the person the party to have the Prime minister 0:17:58.480 --> 0:18:02.840 and try and form some form of coappitatial cohabitation, I 0:18:02.880 --> 0:18:05.440 think it's say English, is that they won't get in it. 0:18:05.440 --> 0:18:09.600 They won't allow any form of spending cuts or anything 0:18:09.640 --> 0:18:12.520 to reduce the benefits that a lot of French people. 0:18:13.400 --> 0:18:16.160 Eight percent of the French economy is state spending. It's 0:18:16.200 --> 0:18:20.760 a very socialist driven state and they don't like their 0:18:20.760 --> 0:18:24.120 benefits getting touched, which means nothing will happen at least 0:18:24.119 --> 0:18:28.040 twenty twenty seven, no improvement on the fiscal outlook. That's 0:18:28.200 --> 0:18:31.760 very bad news for bondholders, for credit radio season, indeed 0:18:31.760 --> 0:18:34.040 probably for European Union cohesion. 0:18:34.560 --> 0:18:38.639 So I know in your column, Marcus, perhaps one of 0:18:38.680 --> 0:18:41.320 the rationales from Mark Crohn's boldness here is that will 0:18:41.359 --> 0:18:44.800 actually force Marine Leapen to maybe reveal what her plans 0:18:44.800 --> 0:18:47.120 for the economy are. What do we know or what 0:18:47.160 --> 0:18:47.679 don't we know? 0:18:48.440 --> 0:18:50.720 Well, we they deliberately a bit like the Labor Party 0:18:50.720 --> 0:18:52.040 it's about to take power in the UK. 0:18:52.119 --> 0:18:54.399 They've been very should we say with. 0:18:54.680 --> 0:18:57.879 Erchet In telling us what they are actually going to 0:18:57.920 --> 0:19:02.000 planning to do, and Marilla Penn has basically said no 0:19:02.200 --> 0:19:05.600