WEBVTT - Daybreak Weekend: Fed Meeting, US Tech, European Defense Earnings 0:00:00.240 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.400 --> 0:00:13.320 This is Bloomberg Daybreak Weekend, our global look at the 0:00:13.320 --> 0:00:15.960 top stories in the coming week from our Daybreak anchors 0:00:16.160 --> 0:00:19.040 all around the world. Straight Ahead on the program, a 0:00:19.120 --> 0:00:21.720 look ahead to next week's FED meeting and earnings from 0:00:21.760 --> 0:00:24.079 some of tech's Magnificent seven companies. 0:00:24.400 --> 0:00:27.000 I'm Caroline Hebge in London, where we're looking ahead to 0:00:27.040 --> 0:00:30.320 European defense earnings, including from Airbos and Leonardo. 0:00:30.640 --> 0:00:33.440 We'll look at top interviews from the APEC finance ministers 0:00:33.479 --> 0:00:36.840 meeting in South Korea. I'm Nathan Hager in Washington. 0:00:38.200 --> 0:00:42.240 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.280 --> 0:00:45.960 eleven three year, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.479 --> 0:00:51.479 Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Syria, 0:00:51.760 --> 0:00:55.280 XM one twenty one, and around the world on Bloomberg Radio, 0:00:55.320 --> 0:00:57.520 dot Com and the Bloomberg Business App. 0:01:02.160 --> 0:01:04.960 Good day to you. I'm Nathan Hager. We begin today's 0:01:05.000 --> 0:01:08.039 program with the Federal Reserve. The FED begins its two 0:01:08.120 --> 0:01:11.680 day meeting to decide monetary policy on Tuesday. The October 0:01:11.720 --> 0:01:14.920 decision comes Wednesday, followed of course by the news conference 0:01:14.920 --> 0:01:17.920 from FED Chair Jay Powell. For more on what to expect, 0:01:17.920 --> 0:01:20.560 we are joined now by Stuart paul Us, economists with 0:01:20.600 --> 0:01:24.520 Bloomberg Economics, and Stuart, if the markets are to be believed, 0:01:24.880 --> 0:01:28.640 everybody's expecting a cut, especially after the consumer price data 0:01:28.680 --> 0:01:32.000 from Friday that we finally got, is that what you're expecting. 0:01:32.880 --> 0:01:35.679 That is what we're expecting. And I think that the 0:01:35.720 --> 0:01:39.360 consumer price data that we got on Friday actually opens 0:01:39.400 --> 0:01:42.840 the door even wider for an additional cut in December. 0:01:43.680 --> 0:01:47.120 But I think that the FED is going to certainly 0:01:48.040 --> 0:01:51.920 try to avoid surprising markets at this point and we'll 0:01:51.960 --> 0:01:55.560 deliver that quarter point cut next week that everyone's been 0:01:55.560 --> 0:01:56.400 holding their breath for. 0:01:56.840 --> 0:01:59.320 So if that's the case, would it be a surprise 0:01:59.440 --> 0:02:03.400 if the FED did not signal a December cut, given 0:02:03.440 --> 0:02:06.080 that we still don't know whether we're going to get 0:02:06.120 --> 0:02:09.280 the data if this government shutdown keeps going on. 0:02:10.240 --> 0:02:13.880 I think policymakers will try to keep their options open, 0:02:13.960 --> 0:02:18.800 and their explicit messaging will be something like every meeting 0:02:18.960 --> 0:02:22.960 is live, We're not making any decisions in advance of 0:02:23.000 --> 0:02:27.040 the meetings themselves. So I don't think that they're going 0:02:27.080 --> 0:02:31.560 to be so bold as to offer some sort of 0:02:31.560 --> 0:02:35.240 clarion call for a December cut. But I think that 0:02:36.200 --> 0:02:39.280 the fact that the FED is comfortable with sequential cuts 0:02:39.400 --> 0:02:43.680 right now, and it still views policy as at least 0:02:43.840 --> 0:02:48.160 modestly restrictive, makes a December cut more likely than not. 0:02:48.440 --> 0:02:51.640 Also, so let's talk a little bit more about why 0:02:51.800 --> 0:02:55.080 the consumer price data opens the door even further to 0:02:55.240 --> 0:02:58.200 that December cut. We seem to be getting that indication 0:02:58.280 --> 0:03:00.160 from the markets as well. What do you say in 0:03:00.200 --> 0:03:01.600 the data that's got you open to that. 0:03:02.800 --> 0:03:05.400 There are really three or four items that stood out 0:03:05.440 --> 0:03:07.560 to me in the Friday report. The first is that 0:03:07.680 --> 0:03:13.919 tariff passed through remained modest. When we track the product 0:03:14.240 --> 0:03:18.399 or spending level tariff that has been applied since April, 0:03:18.600 --> 0:03:22.680 and the price growth that we have seen for those 0:03:22.720 --> 0:03:26.320 spending categories since April, tariff passed through to the consumer 0:03:26.440 --> 0:03:30.560 level is still rather modest. Second, core goods prices just 0:03:30.720 --> 0:03:37.640 in the aggregate are still downshifting. There's been a deceleration 0:03:37.880 --> 0:03:41.600 in prices in core goods, which should quell some fears 0:03:41.640 --> 0:03:44.200 further for the FED. The third thing that I'd point 0:03:44.240 --> 0:03:48.400 to is that core services, which typically matters most of 0:03:48.440 --> 0:03:53.000 the FED core services prices are also tame, and there 0:03:53.120 --> 0:03:56.960 was a major step down in rents, and rents and 0:03:57.000 --> 0:04:00.680 owner's equivalents of rents are one of the spending categories 0:04:00.680 --> 0:04:05.680 that are most highly levered two monetary policy decisions, which 0:04:05.720 --> 0:04:08.640 shows that there might be some additional room for the 0:04:08.680 --> 0:04:12.040 Fed to bring down rates given the fact that home 0:04:12.080 --> 0:04:15.520 prices and home price appreciation has been slow, and so 0:04:15.760 --> 0:04:19.039 rent growth has also slowed. I think that all of 0:04:19.080 --> 0:04:22.839 those details from the September CPI report are going to 0:04:22.839 --> 0:04:26.119 be viewed favorably by the FED when it meets next week. 0:04:26.320 --> 0:04:29.719 Are you thinking then that we could continue to see 0:04:30.080 --> 0:04:34.360 pass through on the tariffs from this data, given that 0:04:34.680 --> 0:04:38.440 we might not see further data. Even the White House 0:04:38.480 --> 0:04:41.000 is warning that if the shutdown goes on, we're not 0:04:41.040 --> 0:04:43.960 going to get potentially in October consumer price index. 0:04:45.360 --> 0:04:46.880 I think that even if we were to get an 0:04:46.880 --> 0:04:50.160 October consumer price index, we would have to look at 0:04:50.160 --> 0:04:53.600 it rather skeptically because the data collection process has been 0:04:53.600 --> 0:04:59.560 interrupted by the shutdown. Instead, we have an alternative measure, 0:05:00.120 --> 0:05:03.080 and we look at a broad swath of data that 0:05:03.360 --> 0:05:07.920 allows us to get a more real time understanding of 0:05:08.160 --> 0:05:10.919 price pressures, and right now it looks like tariff passed 0:05:10.960 --> 0:05:14.240 through is relatively limited, and Nathan, one thing that I'd 0:05:14.240 --> 0:05:19.160 point out is that firm's ability to pass through tariff 0:05:19.279 --> 0:05:22.960 costs that they've incurred throughout the supply chain. Firm's ability 0:05:23.080 --> 0:05:27.560 to pass through those tariff costs to consumers are being 0:05:27.640 --> 0:05:32.520 limited by consumers income growth. Consumers cannot bid up the 0:05:32.520 --> 0:05:36.120 price of goods and services in a cooling labor market. 0:05:36.640 --> 0:05:39.200 And when that's the case, again, the FED just has 0:05:39.240 --> 0:05:41.359 a little bit of space to cut. They don't have 0:05:41.440 --> 0:05:45.920 to worry as much about the upside inflation risk created 0:05:45.960 --> 0:05:50.320 by tariffs. Instead, they can rotate their attention even more 0:05:50.520 --> 0:05:54.239 toward the maximum employment side of their dual mandate. 0:05:54.520 --> 0:05:57.800 Really appreciate this Stewart ahead of that FED decision on Wednesday, 0:05:57.960 --> 0:06:02.520 our thanks to Stewart. Paulus Acomist with Bloomberg Economics. Next, 0:06:02.560 --> 0:06:05.520 we move to corporate earnings from some of tech's Magnificent 0:06:05.680 --> 0:06:09.120 seven companies. This week, we hear from five of them, Microsoft, 0:06:09.200 --> 0:06:13.000 Meta Platforms and Alphabet on Wednesday, then on Thursday it's 0:06:13.080 --> 0:06:17.719 Apple and Amazon. Busy times for mandeep saying senior tech 0:06:17.760 --> 0:06:21.279 industry analysts for Bloomberg Intelligence, who joins us now, Mandeep, 0:06:21.279 --> 0:06:24.159 thanks for being with us. We call them the mag seven. 0:06:24.240 --> 0:06:27.400 But do these companies really rise together in tandem? 0:06:27.440 --> 0:06:31.800 Still they do, although I would say that, you know, 0:06:31.880 --> 0:06:36.760 with Jenai really making a difference in terms of the 0:06:36.880 --> 0:06:41.240 top line contributions, this will be a quarter where you 0:06:41.440 --> 0:06:46.680 will see some divergence between the likes of Microsoft and Google, 0:06:46.839 --> 0:06:50.640 which may get a much bigger lift in their cloud 0:06:50.720 --> 0:06:58.000 revenues from AI versus let's say Amazon or Meta, where Amazon, 0:06:58.080 --> 0:07:01.680 even though it has a very sizeable cloud business, may 0:07:01.720 --> 0:07:05.400 not get the same kind of lift from AI that 0:07:05.880 --> 0:07:09.760 the other two hyperscillers are getting. And also Meta, I 0:07:09.800 --> 0:07:13.560 think because they don't have a cloud business, it will 0:07:13.600 --> 0:07:17.200 be interesting to see if Meta ends up increasing their 0:07:17.280 --> 0:07:19.280 CAPEX numbers for twenty twenty six. 0:07:19.600 --> 0:07:22.240 Let's talk a little bit more about that divergence then, 0:07:22.320 --> 0:07:25.680 because it seems like, particularly for Microsoft, it's been off 0:07:25.720 --> 0:07:28.480 to the races with their partnership with open Ai. Is 0:07:28.480 --> 0:07:31.520 that what, Scott, you're thinking that that may be fueling 0:07:31.520 --> 0:07:32.520 the divergence here? 0:07:33.200 --> 0:07:38.600 Yes, And also OpenAI has signed three big deals to 0:07:38.760 --> 0:07:43.760 expand their data center capacity and that's not with Microsoft, 0:07:43.960 --> 0:07:47.640 so it's signed you know, a big deal with Oracle, 0:07:48.840 --> 0:07:54.239 with Broadcom, with Nvidia, and also another deal with AMD. 0:07:54.840 --> 0:07:59.320 And you know, Microsoft still ends up benefiting because they 0:07:59.360 --> 0:08:03.200 have a forty nine percent stake in open Ai, they 0:08:03.200 --> 0:08:07.080 get a revenue share from open Ai. And also you know, 0:08:07.320 --> 0:08:10.440 with open Ai doing so well in terms of you know, 0:08:10.520 --> 0:08:17.600 they're deploying their models, it indirectly benefits Microsoft on the 0:08:17.680 --> 0:08:22.200 Azure side, where we saw Microsoft Azure business growing thirty 0:08:22.280 --> 0:08:26.040 nine percent last quarter and this quarter maybe another solid 0:08:26.080 --> 0:08:29.520 quarter off around forty percent growth. So that's where the 0:08:29.600 --> 0:08:32.679 tailwind is so strong for a company like Microsoft. 0:08:32.840 --> 0:08:35.560 And when it comes to Google parent Alphabet, I guess 0:08:35.600 --> 0:08:39.680 we just got that confirmation that Google's got this partnership 0:08:39.760 --> 0:08:42.400 with Anthropic. I don't know if we're going to see 0:08:42.440 --> 0:08:44.319 that reflected in the earnings, but what does that mean 0:08:44.320 --> 0:08:45.160 for them going forward? 0:08:45.520 --> 0:08:50.040 It's huge. I mean another company that's benefited from AI 0:08:50.240 --> 0:08:55.000 workload spend is Google cloud segment, not their AD revenue, 0:08:55.000 --> 0:08:59.679 but their cloud segment. And I think with this Entropic deal, 0:09:00.120 --> 0:09:03.440 what they're signaling is they are ready to sell their 0:09:03.600 --> 0:09:08.400 TPU chips outside of their own cloud. And this is 0:09:08.559 --> 0:09:13.200 huge because Nvidia really dominated that space and now you 0:09:13.320 --> 0:09:17.720 have got TPU chips that can actually compete with Nvidia 0:09:17.760 --> 0:09:21.920 at the chip level, and to my mind, this expands 0:09:22.200 --> 0:09:25.400 you know, the relevance of TPUs outside Google Cloud, and 0:09:25.440 --> 0:09:29.680 it could have huge ramifications you know, twelve to twenty 0:09:29.679 --> 0:09:33.160 four months out because it could be at a much 0:09:33.200 --> 0:09:36.600 lower price point than in Nvidia chips. And that's where 0:09:36.679 --> 0:09:40.200 you know, it gets very competitive if other companies start 0:09:40.240 --> 0:09:42.200 to adopt TPU chips. 0:09:42.679 --> 0:09:44.880 On the other side of the coin, you mentioned Amazon 0:09:45.120 --> 0:09:47.680 and meta platforms. Of course we're coming into these earnings 0:09:47.720 --> 0:09:52.640 for Amazon after that big AWS outage last week. How 0:09:52.760 --> 0:09:55.120 vulnerable is Amazon right now? 0:09:55.880 --> 0:09:59.720 I mean to me, the key metric here is cloud margins. 0:10:00.200 --> 0:10:04.400 So with both Microsoft and Google you will see cloud 0:10:04.440 --> 0:10:08.720 margins expand. In the case of Amazon, we saw cloud 0:10:08.840 --> 0:10:13.640 margins actually go down last quarter, and partly that has 0:10:13.679 --> 0:10:16.800 to do with the fact that AI isn't that big 0:10:16.840 --> 0:10:20.960 of a tailwind for Amazon still, and you know, they 0:10:21.160 --> 0:10:25.800 may be taking a lower margin for AI workloads just 0:10:25.840 --> 0:10:28.360 to make sure that they maintain their market share. Remember, 0:10:28.440 --> 0:10:32.280 they are the largest incumbent cloud provider, so they have 0:10:32.400 --> 0:10:35.520 to add more revenue to grow at a higher rate 0:10:35.640 --> 0:10:38.560 than there are other two clouds and that's where they 0:10:38.760 --> 0:10:42.360 may be taking a margin hit. So margins for cloud 0:10:42.400 --> 0:10:45.920 segment of aws are really important at this quarter. 0:10:46.679 --> 0:10:49.680 And in terms of Meta platforms, I know they've been 0:10:49.720 --> 0:10:53.120 spending a lot of time poaching AI workers from Apple. 0:10:54.280 --> 0:10:55.440 Is that going to pay off for them? 0:10:56.040 --> 0:10:59.360 Well? Now we also read some news that they are 0:10:59.480 --> 0:11:03.200 actually playing off up to six hundred people. So a 0:11:03.240 --> 0:11:07.319 lot going on in Meta in terms of their AI efforts. 0:11:07.480 --> 0:11:11.959 And I think the main concern here is if Meta 0:11:12.080 --> 0:11:15.080 ends up raising their CAPEX by let's say another thirty 0:11:15.120 --> 0:11:17.920 to forty percent for twenty twenty six, which means they 0:11:18.360 --> 0:11:22.280 are spending almost one hundred billion dollars in capex next year, 0:11:23.000 --> 0:11:26.800 how does that translate into ROI? So that ROI question 0:11:27.040 --> 0:11:30.760 for Meta is really applicable because the only place where 0:11:30.840 --> 0:11:34.760 Meta has seen a lift from AI is in more 0:11:34.840 --> 0:11:38.120 targeted ads and in ad pricing, and because they don't 0:11:38.160 --> 0:11:41.800 have a separate cloud business, I think the question around 0:11:41.920 --> 0:11:45.600 ROI may get louder if they end up, you know, 0:11:45.640 --> 0:11:48.679 guiding fred in excess one hundred billion dollars in capex 0:11:48.720 --> 0:11:49.760 for twenty twenty six. 0:11:50.200 --> 0:11:51.920 And when it comes to Apple, of course, you've been 0:11:51.920 --> 0:11:53.960 talking for so long about how they've been trying to 0:11:53.960 --> 0:11:58.120 play catch up around artificial intelligence. What's the main driver 0:11:58.440 --> 0:12:00.400 for them as we look at their earnings. 0:12:00.960 --> 0:12:04.439 I mean it has to be iPhone seventeen and what 0:12:04.559 --> 0:12:08.400 kind of a refresh cycle it could trigger. I think 0:12:08.480 --> 0:12:11.480 Apple has to do more than just the hardware side. 0:12:11.520 --> 0:12:16.640 They need a much better LLLM strategy, whether that means 0:12:16.760 --> 0:12:21.199 partnering with someone or you know, doing something on their own. 0:12:21.280 --> 0:12:24.680 But time is really running out in terms of laying 0:12:24.720 --> 0:12:27.760 out what their AI strategy will be, and that is 0:12:27.840 --> 0:12:29.920 where there are still questions around Apple. 0:12:30.360 --> 0:12:33.360 Thanks for this, Mandy, really appreciate it. That's Man Deep Saying, 0:12:33.480 --> 0:12:37.000 senior tech analyst for Bloomberg Intelligence and coming up on 0:12:37.040 --> 0:12:40.599 Bloomberg day Break weekend, we look ahead to defense earnings 0:12:40.600 --> 0:12:43.760 in Europe from the likes of air Bus and Leonardo. 0:12:44.120 --> 0:12:59.199 I'm Nathan Hager, and this is Bloomberg. This is Bloomberg 0:12:59.240 --> 0:13:02.160 day Break Weekend, our global look ahead, the top stories 0:13:02.160 --> 0:13:05.480 for investors in the coming week. I'm Nathan Hager in Washington. 0:13:05.720 --> 0:13:07.600 Up later in our program, we'll take a look at 0:13:07.600 --> 0:13:10.240 some of the top interviews from the APEX Finance ministers 0:13:10.280 --> 0:13:13.920 meeting in South Korea, but first European defense companies are 0:13:13.920 --> 0:13:17.280 grappling with renewed Russian threats, the ongoing war in Ukraine, 0:13:17.360 --> 0:13:21.120 and significant dependencies on American made weapons and systems. There's 0:13:21.160 --> 0:13:23.840 also been a defense selloff in recent weeks following the 0:13:23.840 --> 0:13:27.000 ceasefire in the Middle East and now uncertainty around President 0:13:27.040 --> 0:13:30.920 Trump's stance toward Vladimir Putin, amid intensified diplomatic efforts to 0:13:30.960 --> 0:13:34.240 bring peace between Russia and Ukraine. With some of Europe's 0:13:34.240 --> 0:13:37.640 biggest defense names, including air Bus and Leonardo, reporting earnings 0:13:37.679 --> 0:13:40.080 in the next few days, let's get more from Bloomberg 0:13:40.160 --> 0:13:43.480 Daybreak europe banker Caroline Hepger in London, Nathan. 0:13:43.600 --> 0:13:47.720 The EU's Defense Readiness Plan sets an ambitious goal Europe 0:13:47.720 --> 0:13:50.120 should be ready for a potential war with Russia by 0:13:50.160 --> 0:13:54.120 twenty thirty, but its details are vague. The main underpinning 0:13:54.320 --> 0:13:57.680 is a push for European defense autonomy. The aim is 0:13:57.760 --> 0:14:00.960 for forty percent of procurement in the EA use flagship 0:14:01.040 --> 0:14:04.880 defense programs to be conducted jointly instead of separately by 0:14:04.880 --> 0:14:07.040 all the different member states, and this by the end 0:14:07.080 --> 0:14:10.440 of twenty twenty seven. So in short, the idea is 0:14:10.559 --> 0:14:15.199 buy more, buy together and by European even if US 0:14:15.400 --> 0:14:19.480 weapons for now may actually be the quickest fix. Torsten 0:14:19.640 --> 0:14:22.480 Ral is the co CEO of the Munich based defense 0:14:22.520 --> 0:14:27.360 technology firm Helsingh. He says that the increase in investor 0:14:27.520 --> 0:14:30.640 interest in his sector has led to a bubble in 0:14:30.680 --> 0:14:34.200 the defense market. He's been speaking two Bloomberg's Tom McKenzie 0:14:34.400 --> 0:14:36.400 at the Bloomberg London Tech Summits. 0:14:36.600 --> 0:14:38.400 I think there's definitely a bubble right now, and the 0:14:38.440 --> 0:14:40.960 reason for it is in twenty twenty one, not a 0:14:41.040 --> 0:14:45.560 single EUROPEANBC in particular wanted to touch defense. Now everyone has 0:14:45.600 --> 0:14:48.600 moved into defense, and you know, including the crypto caravan 0:14:48.680 --> 0:14:51.480 that's moved from crypto now into defense and is trying 0:14:51.520 --> 0:14:54.120 to spend its money there. I think in some ways 0:14:54.120 --> 0:14:57.480 it doesn't matter. It creates noise in the market obviously, 0:14:57.520 --> 0:14:59.320 but there is a lot of money I think that's 0:14:59.360 --> 0:15:01.600 not going to see a So that was. 0:15:01.560 --> 0:15:05.720 The co CEO of helsing putting market moves to one side. 0:15:05.800 --> 0:15:08.880 How prepared is Europe? How is it coping with the 0:15:08.920 --> 0:15:12.960 shifting sounds in US policy, growing hybrid threats and on 0:15:13.160 --> 0:15:17.600 certain timelines for funding and defense procurement. What can we 0:15:17.680 --> 0:15:21.560 expect from the earnings of Europe's largest defense company, Airbus 0:15:21.600 --> 0:15:24.800 and the others including Leonardo, which are all to come 0:15:25.040 --> 0:15:27.960 in the next few days. Well, joining me is Bloomberg's 0:15:28.000 --> 0:15:32.160 Global Defense editor Jerry Doyle. Welcome to the radio studio. 0:15:32.200 --> 0:15:34.760 Thank you for being with us. Jerry. This is a 0:15:34.800 --> 0:15:39.280 really big topic. There is a fragile ceasepar between Israel 0:15:39.320 --> 0:15:42.280 and Hamas right now. There is a push for peace 0:15:42.880 --> 0:15:46.560 in Russia and Ukraine. Meanwhile, of course you've got the 0:15:46.560 --> 0:15:50.520 Trump administration who are really zigzagging very frequently on policy. 0:15:50.800 --> 0:15:53.120 You know, whether it comes to Gaza, or whether it's 0:15:53.120 --> 0:15:57.240 about the Kremlin, or even potentially about Taiwan. Does that 0:15:57.400 --> 0:16:01.240 change the outlook for the defense sector in your or 0:16:01.600 --> 0:16:03.680 do the fundamentals basically stay the same. 0:16:04.120 --> 0:16:07.080 I think the fundamentals are basically the same. I mean, 0:16:07.120 --> 0:16:10.880 you're absolutely right on Ukraine. For instance, there's going to 0:16:10.880 --> 0:16:12.400 be a meeting, and then there's not going to be 0:16:12.440 --> 0:16:14.520 a meeting, and then there is a meeting but nothing 0:16:14.560 --> 0:16:16.480 comes of it. There's going to be a deal, there's 0:16:16.480 --> 0:16:21.440 no deal. Because of that uncertainty, I think a lot 0:16:21.440 --> 0:16:24.440 of people might perceive that there's also uncertainty in terms 0:16:24.480 --> 0:16:27.720 of what Europe is looking for the defense spending and 0:16:27.800 --> 0:16:30.440 investment in the sector. But again, if you talk to 0:16:30.800 --> 0:16:35.360 European politicians and policymakers, there is a very strong commitment 0:16:35.400 --> 0:16:39.960 to increasing defense spending, increasing investment in the defense sector 0:16:40.080 --> 0:16:44.520 in Europe, and making sure that their country's militaries are 0:16:44.600 --> 0:16:47.800 able to sort of stand on their own. Because the 0:16:47.840 --> 0:16:51.280 one thing that seems fairly certain despite everything else that's 0:16:51.320 --> 0:16:54.240 happening in Washington, there does seem to be a pullback 0:16:54.320 --> 0:16:57.840 of the US from Europe in terms of being the 0:16:58.160 --> 0:17:00.120 type of ally and partner that it has been in 0:17:00.160 --> 0:17:00.520 the past. 0:17:01.080 --> 0:17:03.360 Yeah. Absolutely, And we've seen have only such a big 0:17:03.440 --> 0:17:07.360 uptick in terms of drones in terms of jet incursions 0:17:07.359 --> 0:17:10.520 into NATO airspace, particularly in Eastern Europe, and this idea 0:17:10.560 --> 0:17:14.399 of kind of hybrid threats as well, all European nations 0:17:14.520 --> 0:17:16.199 kind of be able to shore up their air defense 0:17:16.200 --> 0:17:19.560 systems because eighty percent of it is basically American made. 0:17:19.720 --> 0:17:21.879 Yeah, I mean, the main problem for Europe on this 0:17:21.960 --> 0:17:25.440 score is at the very high end, European defense companies 0:17:25.600 --> 0:17:28.879 make sort of excellent short range air defense systems, radar 0:17:28.960 --> 0:17:31.920 directed guns and short range missiles that can handle will 0:17:32.000 --> 0:17:35.719 flying threats, cruise missiles, drones and things like that. And 0:17:35.760 --> 0:17:37.880 they also have the mid range sort of very well 0:17:37.920 --> 0:17:41.440 covered with very effective systems such as nasam's and iris T. 0:17:42.240 --> 0:17:44.919 Where Europe struggles in terms of production is the very 0:17:45.000 --> 0:17:49.600 highest end the types of systems they can intercept, hypersonics, 0:17:50.080 --> 0:17:54.400 maneuvering glide vehicles, even you know ICBMs or other type 0:17:54.400 --> 0:17:59.159 of long range ballithic missiles. Really the US US defense 0:17:59.200 --> 0:18:03.040 companies are the the only ones who produced that type 0:18:03.119 --> 0:18:06.040 of system and so for the time being, Europe is 0:18:06.160 --> 0:18:09.320 reliant on those. But for the rest of its needs, 0:18:09.359 --> 0:18:12.360 I think Europe with the right sort of directed spending 0:18:12.400 --> 0:18:13.399 can get it done. 0:18:13.520 --> 0:18:16.919 Okay, that's interesting, and there's also expected to be a 0:18:16.960 --> 0:18:19.240 lot of money that is going to be spent in 0:18:19.280 --> 0:18:21.439 Europe and in NATO. How far do you think that 0:18:21.520 --> 0:18:24.520 the push to reach the five percent defense spending target 0:18:24.800 --> 0:18:29.200 for NATO countries in Europe is going to be able 0:18:29.240 --> 0:18:32.520 to sort of sustain the defense industry or boost the 0:18:32.560 --> 0:18:35.080 defense industry in Europe, which is obviously kind of a 0:18:35.200 --> 0:18:35.920 huge question. 0:18:36.280 --> 0:18:39.800 Yeah. Again, I think the commitment is going to be 0:18:39.920 --> 0:18:43.399 there because the underlying reality the thing that has gotten 0:18:43.560 --> 0:18:46.800 European governments on board with the idea of spending more 0:18:46.840 --> 0:18:49.320 on defense is the war in Ukraine and sort of 0:18:49.359 --> 0:18:53.040 the threat of Russian aggression that does not show any 0:18:53.080 --> 0:18:55.920 signs of abating even if the war in Ukraine ends. 0:18:56.160 --> 0:18:59.240 I think that European governments are now very well aware 0:18:59.680 --> 0:19:03.320 that that Russia does sort of pose a threat to Europe. 0:19:03.359 --> 0:19:07.000 That maybe that perception didn't exist fifteen years ago or 0:19:07.040 --> 0:19:10.359 twenty years ago, now it does. And because that reality 0:19:10.560 --> 0:19:13.240 is not going to change, then the pressure to spend 0:19:13.280 --> 0:19:14.120 is still going to be there. 0:19:14.359 --> 0:19:17.000 Yeah, but a lot of that is reflected in the valuations. 0:19:17.119 --> 0:19:19.199 So there's a question of whether the huge one up 0:19:19.240 --> 0:19:21.280 that we've seen in the stock market valuations of a 0:19:21.280 --> 0:19:23.840 lot of these big firms in Europe, whether you know 0:19:24.359 --> 0:19:26.000 you're going to have to deliver that in terms of 0:19:26.040 --> 0:19:26.680 the spending. 0:19:27.119 --> 0:19:29.240 Yeah, you will, and you know, some of that's going 0:19:29.280 --> 0:19:32.000 to be easier than others. And I think to the 0:19:32.000 --> 0:19:34.240 point earlier that there might be a lot of froth 0:19:34.840 --> 0:19:38.720 in you know, defense investment, I think that's probably true 0:19:38.760 --> 0:19:41.320 to some extent. It's sort of a chicken and egg 0:19:41.800 --> 0:19:45.639 problem where there is all this spending, right so some 0:19:45.840 --> 0:19:48.560 companies are going to you know, they might have made 0:19:48.960 --> 0:19:51.560 just ordinary things before. I might see this money and say, oh, 0:19:52.000 --> 0:19:54.720 instead of making widget, now we're making death widgets. Right, 0:19:54.760 --> 0:19:58.520 So we're going to you know, partake in this huge 0:19:58.800 --> 0:20:00.720 boost of spending. But there's also so a whole other 0:20:00.760 --> 0:20:04.000 set of companies that from the get go have some 0:20:04.040 --> 0:20:07.480 sort of interesting bit of defense related technology and now 0:20:07.520 --> 0:20:09.919 they have a market for it, right, And so I 0:20:09.960 --> 0:20:13.320 think it's weeding out that the first type of company 0:20:13.320 --> 0:20:16.399 that it's just sort of trying to capitalize on the 0:20:16.440 --> 0:20:20.600 increased defense spending without having anything really to offer in 0:20:20.680 --> 0:20:24.159 terms of you know, innovation or new new sort of 0:20:24.240 --> 0:20:28.120 angles or approach it to defense technology, getting those sort 0:20:28.119 --> 0:20:31.720 of off the board, which you know eventually they sort 0:20:31.760 --> 0:20:34.800 of will fall by the wayside and focus more on 0:20:34.840 --> 0:20:37.080 the companies that are bringing something new to the table. 0:20:37.280 --> 0:20:39.760 Yeah, Death, which is I think that cuts through the 0:20:39.800 --> 0:20:43.360 pr kind of industry jargon, doesn't it. 0:20:43.359 --> 0:20:44.360 It's a good band name too. 0:20:44.800 --> 0:20:49.960 Yeah. In terms of the individual companies also who are 0:20:50.040 --> 0:20:51.959 very much involved in this, then we're going to hear 0:20:52.000 --> 0:20:53.560 from in the next few days. I mean Airbus and 0:20:53.640 --> 0:20:57.240 Leonardo and other companies are pushing for preparedness, so Airbus 0:20:57.240 --> 0:21:00.800 obviously wants to fill the gaps in space and satellite capabilities. 0:21:00.840 --> 0:21:03.080 In the last few days, we've also had this tie 0:21:03.160 --> 0:21:06.440 up between air Bars and Leonardo and Tales an agreement 0:21:06.480 --> 0:21:09.399 to merge their space business. So there's a lot that 0:21:09.680 --> 0:21:13.280 is moving. And even when we started really thinking about 0:21:13.280 --> 0:21:16.760 defense quite a few months ago, as this was all building, 0:21:16.800 --> 0:21:19.440 the pressure was mounting, there was a big question about 0:21:19.440 --> 0:21:23.399 whether you'd get a lot more joint cooperation. That seems 0:21:23.440 --> 0:21:25.600 to be coming through in the industry now. 0:21:25.800 --> 0:21:29.120 I think so in Europe, there's this commitment to try 0:21:29.119 --> 0:21:30.879 to do it domestically, to try to do it as 0:21:30.920 --> 0:21:33.520 a continent. Space is also one of these areas that 0:21:33.920 --> 0:21:37.439 Europe is very reliant on the US four at the moment, 0:21:37.520 --> 0:21:40.119 especially on the military side, and you can see the 0:21:40.160 --> 0:21:44.200 importance of having satellite imagery just in the Ukraine War 0:21:44.400 --> 0:21:46.760 during the period earlier this year when the US cut 0:21:46.800 --> 0:21:50.399 off Ukraine from satellite based intelligence for a while, Ukraine 0:21:50.520 --> 0:21:55.040 immediately started yourself around the battlefield. So having those assets 0:21:55.080 --> 0:21:58.879 and having ownership of them is very important to Europe 0:21:58.880 --> 0:22:01.920 and European government. Airbus obviously has a lot of experience 0:22:01.920 --> 0:22:04.640 in this area, and so I think there's a lot 0:22:04.680 --> 0:22:07.399 of potential for joining the forces of some of the 0:22:07.480 --> 0:22:09.680 technological giants to get into satellite. There could be a 0:22:09.720 --> 0:22:13.080 lot to pay off for Europe. The problem then becomes 0:22:13.080 --> 0:22:15.040 how do you get this stuff into orbit? And that 0:22:15.200 --> 0:22:19.440 is something that Europe still lacks, is a high tempo, 0:22:20.160 --> 0:22:24.480 fast cadence heavy launch system for the moment. If you 0:22:24.560 --> 0:22:26.800 want to get a lot of stuff in orbit really fat, 0:22:26.840 --> 0:22:28.239 you probably are going to have to buy it right 0:22:28.320 --> 0:22:29.040 on SpaceX. 0:22:29.280 --> 0:22:32.840 Yes, exactly. So it's the competition. Who anywhere in the 0:22:32.840 --> 0:22:36.880 world can actually keep up with Elon Musk's Space says absolutely. 0:22:37.240 --> 0:22:41.240 We're thinking about the individual defense companies. But I suppose 0:22:41.280 --> 0:22:43.960 the bigger question for Europe, and I want to ask 0:22:44.000 --> 0:22:48.320 you because of your years of studying this industry, is 0:22:48.359 --> 0:22:51.920 whether or not Europe can fight a war with Russia, 0:22:52.040 --> 0:22:55.560 this whole idea around twenty thirty, whether that's too far away, 0:22:56.000 --> 0:22:58.200 whether it's going to be a traditional war, whether we're 0:22:58.200 --> 0:23:00.239 already in a war. I mean, there are a lot 0:23:00.280 --> 0:23:04.520 of questions about Europe versus Vlajimi Putins Russia. 0:23:05.359 --> 0:23:11.480 Yeah, I think that qualitatively European allies collectively have a 0:23:11.480 --> 0:23:15.239 big edge over Russia in almost every area, and you 0:23:15.320 --> 0:23:19.119 can kind of see in the way the war in 0:23:19.240 --> 0:23:22.680 Ukraine has gone for Russia that you know, they've had 0:23:22.720 --> 0:23:27.160 trouble making any headway against a much smaller and more 0:23:27.200 --> 0:23:30.320 poorly equipped adversary. How are they going to fare against 0:23:30.480 --> 0:23:34.080 the combined militaries of Europe, which have trained together for decades, 0:23:34.480 --> 0:23:37.560