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

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordernt. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. We begin this out where stocks pulling back to kick off the second half of the year. Victoria fanadis across my global investments writing. Rotation is the name of the game. Following an unwind of momentum and beta, you can see weaker markets for the next month. Victoria joins us now for more, Victoria, welcome. Just elaborate a little bit more if you can. Where are you expecting to see weakness? Yeah?

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Speaker 3: Well, I think, Jonathan, when you typically have this unwind of moment of beta in the markets, you do have, markets tend to go a little bit weaker for the next thirty forty five days. Doesn't mean you have a huge pullback, but you do have a little bit of a consolidation. And I think we're seeing it within parts of the market. Maybe we don't see it within the entire market, but there are certain sectors and you guys have been talking about them where we've been seeing some of this come down, and you're also seeing within the sectors not everything is responding the same.

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Speaker 4: So look semis.

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Speaker 3: You look at Simi's Russell three thousand semi industry group, you only have about fifteen percent of those names above their twenty day highs. So you had this big peak, you had this bubble kind of formation going on here, and now you're seeing the trends start to come down. And that's some of the weakening that we expect to see in the market. And maybe we'll see it in other areas, but that's an example where you're seeing it.

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Speaker 4: And then you're seeing that.

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Speaker 3: Rotation into areas where sectors where they're actually having expanding twenty day highs, healthcare, financials, industrials.

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Speaker 4: That's where the money is going.

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Speaker 3: And that tells us since money's not coming out of the market, it's staying in and just rotating, we should have a bull market longer term, but a little bit of volatility and some weakness here in the near term.

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Speaker 2: If they sorry that pickup you're seeing in other sectors, is it just the flavor of the same trait.

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Speaker 4: It's not the.

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Speaker 3: Same flavor, but I guess maybe it's kind of the same meal that you're eating here. In terms of looking for those trends in the market, where are you seeing them? Okay, you started to see trends come off in momentum beta, like we talked about. Where are you seeing the up trends? Those are the sectors where people want to go. You have pullbacks in up trends, Those are the technicals people are looking for, and those are the sectors where you're seeing it, those kind of beaten down sectors from before.

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Speaker 4: So similar in.

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Speaker 3: Terms of your looking at technical components to find where to put money to work, but not that you're going into any kind of bubble formation. You're finding those oversold up trends. That's your entry point.

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Speaker 1: I keep wondering, Victoria, when are we going to run out of money?

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Speaker 5: Because it feels like either there has to be some sort of fiscal stimulus that's coming, that's getting pumped into markets, or at some point you have to imagine that every company that says I need another twenty billion dollars is going to get a little bit more pushback, or that semiconductor saying I need eighty five percent profit margin is going to get.

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Speaker 1: A little bit of pushback. I mean, at what point.

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Speaker 5: Do some of these bills start adding up.

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Speaker 1: And becoming cost prohibitive.

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Speaker 3: Lisa, this is where I think the market is actually underestimating some of the elements, some of the warning signs here in the economy. We had a lot of liquidity come into the market in the fourth quarter of last year and beginning of this year, and that liquidity is starting to come out, And obviously if we have changes in the balance sheet you guys were talking about that earlier, that's going to affect liquidity as well. You're having the runoff of the benefits from the tax bill. You're having savings that have already been pulled down by consumers. So where's the money coming from is a good question, But you flip that coin over.

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Speaker 4: We had over three hundred.

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Speaker 3: Billion in new issuance in investment grade in the fixed income markets in the first quarter June alone, had almost two hundred billion come in, so we're getting close to seventeen and a half trillion, and there is no lack of desire for people going in and demand in these markets. Even when you're getting balance sheets that maybe aren't that strong, right free cash flows don't look great, it doesn't matter. They get investment grade ratings. People go in and they buy it up. So money is coming in. Maybe it's the rotation out of the tech component, Maybe it's some money sitting on the sides, Maybe it's money coming out of bitcoin or some of those other areas of the market.

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Speaker 4: But the demand is there.

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Speaker 5: At what point will all this money slashing around the system feed its way into more persistent inflation, even putting aside some of the disinflationary impulse from oil prices of late This.

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Speaker 4: Is the key point I think that the FED is watching.

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Speaker 3: Look, before we had the war start earlier in the year, inflation was already getting sticky, and people were trying to look and see how much is that actually flowing down into the core components of what we're having, core goods and core services. That was already happening, And I think that's the reason the FED is looking and maybe having still of a more hawkish few. Yes, gas prices can come down, but what about the rest of that. Look at core in CPI, in PPI over five percent PCE and okay, say you want to look at supercre right, that was the name of the game for such a long time for the Fed.

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Speaker 4: It's supercore.

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Speaker 3: Well, that's up to three point nine percent, and on a three month average you're actually moving up on an annual basis close to five percent there. So I think there's a lot of concerns with what's flowing down into the core components of our of our economy. That's what the Fed's going to be watching, and that's why they're remaining on hold and having that hawkish tilt that the market seems to be ignoring right now.

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Speaker 6: Victoria, what do you expect to hear from Kevin Moore today?

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Speaker 1: For you?

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Speaker 6: Is this potentially a catalyst for market moves?

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Speaker 4: I'm not sure, Amory, that it's going to be a catalyst.

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Speaker 3: I think everyone's going to be listening because we did get much right from the FOMC press conference or from the statement itself, so maybe they're going to be listening to see if he gives us little nuggets of information.

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Speaker 4: I feel like he's going to be very prepared and have very.

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Speaker 3: Kind of answers that are going to fit what he already spoke about at the FOMC. So I don't see him coming out and giving us a lot of new information. I think he'll be reiterating, but perhaps we get a little more information on the task forces, what those look like, what we're going to see in balance sheet, because look, inflation's driven by money supply, right, and when we've got a balance sheet that's affecting money supply, it's affecting what into growth looks like, it's affecting what overnight lending rates look like.

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Speaker 4: All of that feeds in.

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Speaker 3: Maybe we get a little bit of information there to help the see where rates go ahead.

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Speaker 1: Stay with us.

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Speaker 2: Mulblenberg, Savannah's coming up off to this. Let's talk about chips. What a run we've had, soaring demand for AI equipment and memory, driving chip stocks to their best quarter on record. Angelo Zeno of CFIRA with this to say, we remain positive about the overall outlook for chip and ship equipment providers, as we believe the first half of the year witness a structural reset higher for data center spending. Angela joins us now for more Angela, Welcome to the program. Do you see any deceleration in that spending on the horizon?

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Speaker 7: I mean, John, I would say in terms of deceleration, we'd expect to see some deceleration, just because the numbers are going to get so large, right, But as we kind of look here in the first half of the year, I'd say it's been far from a deceleration. It's been an acceleration in the spending levels. I'd say as we kind of go into the second half, more so into twenty twenty seven, yeah, there's going to be some deceleration, but I think what's more important is the trajectory continues to be positive, and as a result of that, you'll continue to see the earnings growth across the space.

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Speaker 5: I was looking this morning at the job cut announcements among big tech after the reporting on Microsoft cutting some additional staff, Oracle twenty one thousand job cuts, Meta more than eight thousand job cuts, Block more than four thousand job cuts, all of this in part to help offset the expense for all of the capex. How far are we into this sort of capex over labor transition well.

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Speaker 7: If we're talking just the you know, it's interesting if we're talking about just the cloud providers, you know, you know, clearly, i'd say there's only so much you can kind of, you know, take out of those companies. And we've taken out a good amount of kind of the op X costs or kind of the low hanging fruit, so i'd say there's probably not much left. I mean, you'll probably continue to see ongoing cuts from some of those cloud providers, just on an as needed basis and ongoing efficiencies.

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Speaker 4: I'd say outside of.

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Speaker 7: You know, if we're talking more across the enterprise space, that's probably early innings, and that's where you know, over the next couple of years, we'd expect to see some significant cost efficiencies. And that's where you would think some of the you know, some of the help in terms of paying for the stuff is going to come from. It's going to come from a combination of you know, higher revenue from these cloud companies, you know, just overall, you know, improvement and being able to monetize this stuff, as well as through cost efficiencies.

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Speaker 5: Angela John was mentioning this tours and slock note and it was hinting at what we're seeing, which is an increasing shift to Chinese open source models that essentially cause very little or even potentially are free at a time when they're really constrained about how many tokens they can really spend. At what point do you see the cost that people are willing to pay for the hyperscaler services coming down so much that increasing volume isn't enough to offset the declining revenues.

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Speaker 7: I mean, that's that's a great question. I mean, I think when you kind of think about just how this all this plays out, I mean, we continue to we don't think there's an end insight in terms of the new use cases that you know, when we think about the what is driving demand, right, it is the fact that you're going to continue to get new users that start adapting to AI usage. I mean, even when you start looking at the chat, GPTs, the Geminis users of the world, you're still at fairly low levels on where you can kind of get to here over the next couple of years, let's call it a billion to potentially four to five billion exiting the decade. When you start thinking about just the frequency of use of the new users as well as existing users, that's still got ways to go, especially as the enterprise space just starts adopting AI across their workloads. And then you know, of course that compute per use is what's really kind of driven this AI evolution here over the next couple of years, the last couple of years, and we think still that's you know, we think as you kind of go here over the next couple of years, you're going to continue to see greater usage of that. So, you know, I think it's an interesting point. I think, you know, when it's all said and done, I don't think it's going to kind of stop when we stop the act AI usage and kind of the adoption of AI and what the potential here is going to be. And as a result, I mean, you know, clearly as you start thinking about the rest of the supply chain there there you would think be you know, continued room to run when it comes.

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Speaker 1: To the end models.

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Speaker 6: I'd love to get your reaction on fable five now being available once again to the public. This will include, according to Anthropic, more collaboration with the United States, including pre release access to models and safeguards for evaluation. Are you expecting this across all AI models not just anthropic. This closer relationship with the US government.

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Speaker 7: I think. So, I mean, I think you've also seen open AI start to you know, make comments as well, you know, as of late, you know, and them kind of working closer with the US government as well. So I would suspect as we kind of start thinking about more of these leading edge models that are expected to roll out here, you know, in the coming quarters and years and what have you, I think there's there's going to be greater scrutiny between you know, security and the option you know, the the new capabilities that could come out with these new models, and as a result, you're going to have to work with the US government to some extent or kind of you know, make insure clearance on that end. So yeah, I mean i'd expect to see more of that as we kind of look ahead. I think it is a positive that we've we've kind of gotten the thumbs up to roll this stuff out in terms of you know, the ongoing adoption, the new capabilities that we could potentially see here from AI stay with.

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Speaker 2: Us, more Bloomberg surveillance coming up after this, plus tend to autos this and and Vanning gets vision for an AI defined Vehicle, announcing plans to use kind of GAGE software to strink development times and fast track autonomous driving technology across ninety percent of its lineup. Joining us now is this and president and CEO if An Espinosa. If I'm good to see you, sir, Thanks for being us. Good morning with us here in New York. One question, okay, and then we're going to move on quickly. I promise how many cars have you sold in sea breeze blue pearl in the last few months since a well known manufacturer came out with a very expensive car in what looked like sea breeze blue pearl.

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Speaker 8: Well, it was a surprise for us to see this car coming out because it is coincidentally the same color emblematic color that we use for our launch of Veniss and Leaves, So it was an interesting surprise.

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Speaker 2: I would say, I'll move on quickly for you so we don't have to talk about it too much. Let's talk about the new cars. Can you describe for our audience the future of driving and what it's going to look like, because if you think about what it's been like for the last century, it really hasn't changed too much. Four wheels a driver, a wheel. You know, that's how it works. It gets better, technology improves, but we haven't seen massive changes. How different is it going to be in the future.

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Speaker 8: This is going to completely evolve. So we're working a lot with AI technology to bring the cars into a full autonomous end to end experience where you simply sit in the car behind the wheel, the car will take over for you. Let's say you know, I'm living in Japan, and so let's say you go and play golf on the weekend. If you enjoy driving, maybe you enjoy driving in the morning towards the golf course, you drive by yourself, but then on the way back there's usually a lot of traffic, so you'll just ask the car to drive for yourself, engage the autonomous mode, and then you can just either relax, check your news. There's a lot of things that you can do with the people's time while they're sitting in the cabin because we have two massive screens in front of them and then we can feed a lot of information. We can make their lives more productive, entertainment. There's a lot of things that we are we are imagining for the future.

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Speaker 2: Development times or an interesting piece of this as well. I'd love to bring some life into that conversation. If you're in a car lot right now and you're trying to sell individual cars, it's a dream. If you work from manufacturer that can't lead times for development and bring new cars to market, it has them sell, right, have them sell. That's what a lot of companies are looking for. How's this going to change too.

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Speaker 8: Well, we have evolved a lot, you know, in the past eighteen months, we have shortened our development processes around forty percent. So now we are able of putting new cars on the road in thirty months from the concept moment all the way to the startup production thirty months for a global development car. So this is a speed that Nissa has now and it's helping us adjust a lot of our launching schedules. And it's the future because the world is so unpredictable these days. We used to be a company that put a lot of energy forecasting and trying to predict what will happen in the future. But this is impossible now, you know, with all the geopolitics and play on the context in which we live is very complicated. So we decided to put our energy just on being a nibbler and quicker company because this is a way to cope with the uncertainty of the world. And as I said, we have reduced our development times now at forty percent.

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Speaker 1: It does seem like these two things right. Odd's right. On one hand, you've got the technological advancement that can.

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Speaker 5: Speed things up, and then you've got policy that's just completely all over the place when it comes to things like autonomous driving and how you even test it. I mean, where do you think you're going to see the acceleration of autonomous driving and nissance market? The fast is just based on what you're allowed to test, you're allowed to roll out.

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Speaker 8: Well, I think we need to go step by step. That technology today is actually ready. You can with the technology that we are working today with our partner Wave actually it's almost level for ready, so it means completely a driver less car. But we need to go step by step, not only because of the regulators, but also because of the consumers. We don't want the consumers to suddenly be a verse of the technology. We need to do one step at a time, and we will gradually introduce this technology. We're starting with our products in Japan. We will have a first end to end capable car, which is called il Grand. We will launch at the end of the next fiscal year twenty seven, and then we will gradually roll out this technology all over the world. We want to have the technology applied in as much as ninety as much as ninety percent of our lineup. So that technology is really promisingly, super exciting and it's the future of the automobile.

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Speaker 5: There also have been all of these international modes that have been created, particularly with the auto sector in the United States.

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Speaker 1: How much do you see the week or.

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Speaker 5: Yet as an offset to that, given the fact that maybe you could even offer cheaper price or you know, have some sort of ability to maneuver on that competitive a golf.

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Speaker 8: Well, actually, the world again, as I was saying, is very unpredictable, so you need to head through vettes and you need to remain flexible. And this is what we're doing our industrial footprint. One of the beauties that it has is that we are so widely spread around the world that we have the ability to pivot depending on what happens with One thing is a for X exchange, but you have other things like policy like new rules, emissions, there's so many things happening all over the place that you need to remain very nimble and you know, very widely spread and play a good strategy.

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Speaker 6: But specifically to Lisa's point, with the strengthening of the dollar the weakening of the end, are you going to at this moment change any of your plans to capitalize on that?

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Speaker 8: No, we will continue the strategy that we have said in the US, which is building cars in the US. We have two very large manufacturing sites, one in Spyrna, Tennessee, the other kind of Mississippi, and we will continue doing that. So to give you some numbers, last year January, around forty five percent of our product mix was built in the US. The rest was imported from either Japan or Mexico. And we close a year with sixty percent of our product makes being built in the US. And we will continue doing that because it makes sense. With the current context in which we're living, it does make sense to continue investing in the US and continue bringing more cars into North America.

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Speaker 6: Given the current tariff environment. I believe for every auto produced in Mexico's about two or three thousand dollars more.

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Speaker 1: What are you doing with that?

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Speaker 6: How much is being passed on to the consumer and how much are you just absorbing.

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Speaker 8: Well, we have a very aggressive cost reduction program which we started a year ago and I took over the company, and we are focusing a lot on the products that are built in Mexico because they are cost competitive. But it's true they are currently tireth twenty five percent, which is it is making part of the lineup that we're being in for Mexico difficult to sell. So we have a very strong cost reduction program in those vehicles because we do see an opportunity, you know, looking at the pressure that the US market has today in terms of affordability, we see that potentially some of the buyers could be moving into these.

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Speaker 1: Type of vehicles.

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Speaker 8: So we are working very strongly on making them more competitive, so we can probably take advantage of that.

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Speaker 2: If you think, can we wrap it up by talking about China? Sure, how difficult is it to compete with Chinese or the manufacturers?

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Speaker 8: Well, China is a world of his zone. I would say it's a very unique ecosystem. See unique, I think the technology, speed costs are They're moving at the very different speed than the rest of the world, and for me, it's important to remain present in China because I believe a lot of the future standards of the industry are being set by some of the Chinese players today, again in terms of speed, in terms of costs, and in terms of technology. So for me, the role of China is twofold. One is of course continuing to produce and sell cars in China because we have over fifteen million users of need some products in that country, so we owe them product that is competitive and that is attractive for them. But at the same time, it's a place where you can learn a lot and you can start exporting some of the methods, some of the processes and new ways of working that we have discovered.

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Speaker 2: An example, what can we learn from what they've done it and an industry right now that they seem to be dominating.

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Speaker 4: Well.

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Speaker 8: One of the things is when you look at the products in China today, almost eighty percent of the product that are offered have autonomous technology embedded, and customers are now not considering to buy a car if you don't offer some level of autonomous technology. So this is just an example of what can happen and what we can imagine coming out from this unique ecosystem that they have.

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Speaker 2: This is the Bloomberg Savanics podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on bloombog TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Term and the Bloomberg Business out MHM